Risks remain despite inflation slowdown

Consumer prices rose at a slower-than-expected pace in June, although issues that could affect the supply of key commodities and push prices up remained, officials reported on Friday.

The Philippine Statistics Authority (PSA) said inflation for June slowed to 4.4 percent from last May’s 30-month high of 4.5 percent. Analysts polled by the Inquirer this week all said inflation likely accelerated in June.

Last month’s inflation rate was near the top end of the Bangko Sentral ng Pilipinas (BSP) target of 3 to 5 percent. Year-to-date, average inflation inched up to 4.2 percent.

“Headline inflation decelerated slightly on lower housing costs. But food prices remained elevated. The central bank took a hawkish tone,” HSBC economist Trinh Nguyen said in a note to clients on Friday. “Excess liquidity is another concern; credit growth accelerated in May,” she added.

Data from the Bangko Sentral ng Pilipinas (BSP) showed that the outstanding loans of major banks rose by 21 percent in May, up from 20 percent in April.

BSP Governor Amando M. Tetangco Jr. took a hawkish tone, noting that supply-side issues continued to put upward pressure on food prices. Shifting conditions in advanced economies like the United States, which could result in the continued repatriation of money from countries like the Philippines, might also lead to instability in financial markets that would need to be addressed.

“BSP will adjust policy levers as appropriate to keep a lid on inflation and ensure financial      stability pressures are in check,” Tetangco told reporters after inflation data were released.

At its last three policy meetings, the BSP’s monetary board moved to mop up excess cash from the economy to curb demand and offset pressures on the supply side.

Banks have been ordered to set aside more of their clients’ deposits as reserves—money that would have otherwise been lent to businesses and households.

The National Economic and Development Authority (Neda) said it would work with other agencies to come up with administrative measures to fight rising prices.

“One of the main reasons for the high price of food is the rather sharp increases in rice prices in June 2014 as supply tightness persisted in the market,” Neda Director General and Economic Planning Secretary Arsenio Balisacan said.

“In the short term, the interventions can focus on ensuring supply adequacy by allowing sufficient levels of imports to augment local production of rice and other key commodities,” Balisacan said.

He said Manila’s truck ban, which has led to delays in the loading of freight from ships calling at the country’s largest domestic and international ports, should also be reviewed.