August inflation seen overshooting gov’t target

Headline inflation in August likely returned above the government’s 2 to 4 percent target band as more expensive fuel and utilities plus a weak peso offset easing food prices, economists said.

Of the 19 economists polled by the Inquirer last week, 18 expected last month’s rate of increase in prices of basic commodities above July’s 4 percent, with the majority of forecasts ranging between 4.2 percent and 4.6 percent. The Philippine Statistics Authority’s (PSA) August inflation report will be out on Tuesday, Sept. 7.

While Metro Manila reverted to 15 days of the strictest enhanced community quarantine (ECQ) on Aug. 6 to 20 in a bid to contain the spread of COVID-19’s more contagious Delta strain, economists said there had been minimal supply chain disruptions unlike previous lockdowns, hence not much impact on consumer prices.

Pantheon Macroeconomics’ Miguel Chanco had the highest August inflation forecast of 4.6 percent year-on-year.

“This will be due mostly to factors beyond the Philippines’ control; rapid world food inflation should now start to filter through domestically, and the lagged impact of rising oil prices on utility costs is set to continue. History suggests that ECQs have had little direct and noticeable impact on prices, and this probably will remain the case this time, particularly given its relatively short imposition. Nevertheless, we’re always on the lookout for potential downside risks in this environment, especially in terms of the cost of services,” Chanco said.

Weaker peso

Bank of the Philippine Islands’ (BPI) Emilio Neri Jr., Moody’s Analytics’ Steven Cochrane, and Sun Life Financial’s Patrick Ella projected a 4.5-percent inflation rate in August.

Both Cochrane and Neri also pointed to the weaker peso since July, which was hiking imports’ costs.

Seven—the most number of economists—forecasted 4.4 percent: ANZ’s Sanjay Mathur, Ateneo de Manila University’s Ser Percival Peña-Reyes, BDO Unibank’s Jonathan Ravelas, HSBC Global Research, Nomura’s Euben Paracuelles, Rizal Commercial Banking Corp.’s Michael Ricafort, as well as Standard Chartered’s Jonathan Koh.

“Base effect in August is slightly more favorable, especially for food inflation. Transport inflation may have remained stable versus July. The impact of movement restrictions [due to ECQ in Metro Manila] has resulted in a fall in mobility, which may have dampened services inflation slightly,” Koh said.

Upside risk

Five economists projected inflation at 4.3 percent last month, namely: DBS’s Chua Han Teng, ING’s Nicholas Antonio Mapa, Philippine National Bank’s Alvin Joseph Arogo, Security Bank’s Robert Dan Roces, and University of Asia and the Pacific’s Victor Abola.

“Food and oil price movements remain the primary upside risk in the months ahead, and transport costs still have add-on risks on continued passenger restrictions,” Roces said.

Maybank’s Zamros Bin Dzulkafli and UnionBank’s Ruben Carlo Asuncion shared the same forecast of 4.2 percent.

“We think that inflation will remain elevated due mainly to supply issues such as unfavorable weather,” Asuncion said, as the prolonged wet season due to La Niña sets in.

London-based think tank Capital Economics had the lowest August inflation forecast of 4 percent, the top end of the Bangko Sentral ng Pilipinas’ (BSP) target range.

Despite most other economists’ consensus that the BSP’s Monetary Board will keep key interest rates steady when it decides on the monetary policy stance on Sept. 23, Capital Economics insisted that a rate cut was imminent due to “a more pressing need to provide support to the economy as virus cases continue to surge.” INQ