BSP sees slower June inflation due to cheaper rice, fuel

Prices of consumer goods and services are expected to have risen between 2.2 to 3 percent in June—lower than the previous month’s pace—due to the combined effects of lower rice and petroleum prices, according to central bank economists.

In a statement, the Department of Economic Research of the Bangko Sentral ng Pilipinas said the June inflation rate, which follows the 3.2-percent pace of price increases in May, could also be restrained by a downward adjustment in electricity rates.

At the same time, domestic prices of basic goods and services are also expected to feel the benefits of a strong peso, which makes imported raw materials denominated in foreign currencies cheaper to buy, the central bank’s economists said.

The expected June inflation range is lower than the BSP’s forecast of 2.8 to 3.6 for May that preceded the government’s official announcement of a slightly faster inflation rate a few days later.

If confirmed, the benign price regime being expected for this month will allow BSP Governor Benjamin Diokno to resume the monetary easing that was put on hold last week after the surprise uptick in the inflation rate.

This latest forecast jibes with an earlier statement made by outgoing BSP Deputy Governor Diwa Guinigundo, who said the monetary regulator was expecting the inflation rate for 2019 to come in at an average of 2.7 percent, revising the 2.9-percent forecast set just last month.

The forecast for the range of increase of prices of basic goods and services for 2020 was also cut slightly to 3 percent from the previous expectation of a 3.1-percent average.

Meanwhile, banks’ reserve requirement ratio—currently the highest in the region—is in the middle of a staggered process of being lowered from May to July to 16 percent from 18 percent.

The BSP’s overnight borrowing rate, which influences the prices that banks charge on their retail and wholesale loans, was cut in early May by 25 basis points to 4.5 percent. The country’s monetary policy direction was reversed that month after being tightened by 175 basis points last year to fight off inflation. (One percentage point is equivalent to 100 basis points.)

“Going forward, the BSP will remain watchful of the evolving inflation environment to ensure that the monetary policy stance remains consistent with the [central bank’s] price stability mandate,” the economists said.

The Philippine Statistics Authority is scheduled to release the inflation data for June on July 5.