‘Benign’ June inflation seen as lower LPG, electricity costs offset rising fuel, rice prices

MANILA, Philippines — The pace of price increases in the local economy likely stayed “benign” in June as rising petroleum and rice prices were likely offset by cheaper cooking fuel and electricity rates, according to the central bank’s economists.

In a statement, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the agency’s Department of Economic Research projected the June 2020 inflation to settle within the 1.9 – 2.7 percent range.

“Higher gasoline, diesel, and kerosene prices, as well as the uptick in the price of rice due to supply bottlenecks, contributed to positive price pressures during the month,” he said. “These could be partly offset by slightly lower [liquefied petroleum gas] price and electricity rate in Meralco-serviced areas during the month.”

If proven correct, the prevailing low inflation rate regime will continue to give the central bank sufficient elbow room to implement further monetary easing, especially with its promise “to do whatever it takes” to help the economy stay afloat amid the coronavirus pandemic.

BSP’s June inflation forecast mimics its May prediction of the same range, with the official government figure coming in at 2.1 percent a few days later — the lowest since November 2019’s 1.3 percent, bringing the first five-month average to 2.5 percent, well within the government’s target range of 2-4 percent for 2020.

Last week, the policy-making Monetary Board ordered a 50-basis point reduction in the central bank’s overnight borrowing rate, thus bringing it to its lowest level in history. The surprise move was meant to boost lending and help buttress the Philippine economy, which is expected to contract by as much as 4 percent this year.

In response to the ongoing coronavirus pandemic, regulators have so far cut policy rates by 175 basis points and the reserve requirements of financial institutions by 200 basis points.

It has extended banks a set of relief measures meant to be passed on to their borrowers in the form of cheaper loans as well as forbearance for existing credit that may fall into distress due to the weakened economic activity.

The central bank has also extended a P300-billion loan to the national government by buying bonds issued by the Bureau of the Treasury and scooped up other debt instruments from the local debt market.

“Looking ahead, the BSP will continue to monitor evolving economic and financial conditions to ensure that the monetary policy stance remains consistent with the BSP’s price stability mandate,” Diokno said.