July inflation seen to range from 4.3% to 5.2%

The rate of increase in consumer prices may settle anywhere between 4.3 and 5.2 percent in July from a year ago, driven by the rise in the cost of crude oil and higher rice prices.

But according to the Bangko Sentral ng Pilipinas, price pressures may also have been tempered by the appreciation of the peso against the US dollar. A strengthening peso makes imported goods, such as oil, cheaper, thereby taming overall domestic inflation.

These factors are the reason why the low end of the projection range has been brought down from the 4.6 percent recorded in June. At the same time, the high end of the July inflation forecast range exceeds that of the previous month.

In June, annual inflation stood at 4.6 percent. In the first six months, it averaged at 4.3 percent.

“Downward adjustments in utility charges and the peso appreciation could offset higher average international crude prices and net increases in rice prices during the month,” BSP Governor Amando Tetangco Jr. said in a text message to reporters.

There are still inflationary pressures, such as volatile oil prices and rising consumer demand, but Tetangco said these could somewhat ease compared with those seen in the previous months.

A significant price pressure is the continuing surge in foreign capital inflows.

Tetangco said the BSP would closely monitor these inflows, and would be prepared to implement a measure to further control the economy’s liquidity situation to ensure that the inflows would not push domestic inflation beyond the ceiling set.

The government aims to keep average inflation within a range of 3 to 5 percent this year.

Emerging markets have been attracting strong foreign capital inflows, a significant portion of which are in the form of short-term investments in stocks and bonds, because of the rising debt woes in most Western economies.

“We might see continued defensive positioning among market participants against both the US dollar and the Euro … due to the stalls in the debt talks in the United States and Europe’s own problems with Greece,” Tetangco said. “As emerging markets … continue to present good value … we can expect foreign exchange to flow to these economies, including the Philippines.”

So far, the inflows, while significant, have not yet caused asset price bubbles, the BSP chief said.

Nonetheless, the central bank will not hesitate to temper liquidity growth once it threatens the rate of rise in consumer prices, Tetangco added.