July inflation rate seen to have risen further

Inflation likely picked up further in July alongside more expensive manufacturing inputs which, in turn, are seen to have slowed down growth in the purchasing managers’ index (PMI).

Of the 15 July inflation forecasts collected by the Inquirer last week, eight were above the 6.1 percent posted in June, which was the highest since the rice crisis of 2018. The Philippine Statistics Authority (PSA) will release last month’s headline inflation figure on Friday.

As for July’s PMI, which will be released on Monday, Dutch financial giant ING expects a slower pace of growth of 53.1 from 53.8 last June, while London-based think tank Capital Economics projected a much lower 52.2.

On Friday, the PSA reported that the producer price index (PPI) for manufacturing in June rose to a new high of 7.2 percent year-on-year, up from May’s 7 percent and reversing a year ago’s 1.4-percent decline. The PSA said inputs to produce coke and refined petroleum products led the PPI climb as prices jumped 22.1 percent. Amid skyrocketing commodity prices, especially of oil, overall manufacturing growth as reflected by the monthly PMI has been slowing down in recent months.

Second half troubles

For the consumer price index in July, Philippine National Bank’s Alvin Joseph Arogo had the highest headline inflation forecast of 6.7 percent mainly due to second-round effects from minimum wage hikes that took effect in June, plus higher jeepney fares, which could offset lower gasoline and diesel pump prices.

For the second half of 2022, Arogo said “we forecast a meaningful increase in the pace of inflation to an average of 8 percent.”

The rate of increase in prices of basic commodities averaged 4.4 percent during the first six months, above the Bangko Sentral ng Pilipinas’ 2 to 4 percent target band of manageable price hikes conducive to economic growth.

“We assume that global commodity prices that immediately impact inflation such as oil, coal and wheat will continue to remain elevated. Another cause of concern is the lagged effect of the spike in the cost of fertilizers on overall food prices. Moreover, we believe that the second round effects will likely be more pronounced during the rest of the year due to the recent increase in the country’s minimum wage,” he said.

Arogo believes elevated inflation for the rest of this year would not dampen economic recovery as much, explaining that “gross domestic product (GDP) growth this year will largely be driven by the faster recovery of the businesses hardest hit by the lockdowns. As such, the drag of higher inflation on consumer spending can largely be outweighed by the economic reopening. The negative impact of high inflation on consumer demand will largely be felt next year.”

Seven other economists and financial institutions see July inflation above June’s: UnionBank of the Philippines’ Ruben Carlo Asuncion, 6.6 percent; Goldman Sachs Economics Research and HSBC Global Research, both 6.4 percent; Bank of the Philippine Islands’ (BPI) Emilio Neri Jr. and ING’s Nicholas Antonio Mapa, 6.3 percent; as well as eManagement for Business and Marketing Services’ Jonathan Ravelas and Sun Life Financial’s Patrick Ella, 6.2 percent.

“The sharp depreciation of the Philippine peso against the US dollar might have increased inflation as well by making imported goods more expensive. From June 10 to July 18, the peso depreciated by 6.5 percent against the greenback,” HSBC said in a report last Friday.

DBS’s Han Teng Chua and Rizal Commercial Banking Corp.’s (RCBC) Michael Ricafort projected 6.1 percent; Regina Capital’s Luis Gerardo Limlingan, Security Bank’s Robert Dan Roces, and University of Asia and the Pacific’s (UA&P) Victor Abola, 6 percent; and China Bank’s Domini Velasquez and United Overseas Bank’s (UOB) Loke Siew Ting, both 5.8 percent.