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

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 have also been restrained by a downward adjustment in electricity rates.

At the same time, domestic prices of basic goods and services could have also felt 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 added.

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 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 coming in at an average of 2.7 percent, revised lower from the 2.9 percent forecast set in May.

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

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. 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 inflation data for July will be released on Aug. 6.