Lower rice, LPG prices kept inflation at bay in July, says BSP

MANILA, Philippines — Prices of consumer goods and services are expected to have risen between 2.0-2.8 percent in July – with a bias toward the downside compared to the previous month’s 2.7-percent pace – due to the combined effects of lower rice and cooking gas costs, according to central bank economists.

In a statement, the Department of Economic Research of the Bangko Sentral ng Pilipinas (BSP) said the July inflation rate 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.

“These could be partly offset by higher prices of petroleum and food items during the month,” the central bank economists said.

The expected July inflation range is lower than the BSP’s forecast of 2.2-3 percent for June, which preceded the government’s official announcement of a tame inflation rate a few days later.

If confirmed, the benign price regime 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 the monetary regulator’s expectations of the inflation rate for 2019 to coming in at an average of 2.7 percent, revised lower from the 2.9 percent forecast set last May.

The forecast for the range of increase in 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 level in the region – came to the end of a staggered May-to-July process of being lowered to 16 percent from 18 percent.

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.

“Looking ahead, the BSP will remain watchful of evolving inflationary environment to ensure that the monetary policy stance remains consistent with the BSP’s price stability mandate,” the central bank’s economists said.

The Philippine Statistics Authority is scheduled to release the inflation data for July on Tuesday, August 6, 2019.