Rise in consumer prices seen to peak in October

INFLATION IS expected to peak in October before easing slightly lower in the remaining months of the year, according to DBS Group.

The Singapore-based group said in its latest research note that they project the base effects, which pertained to comparable year-ago figures, to become unfavorable in the coming months.

“Inflation is not a problem now, but we surmise that the situation will change in the later months of the year,” DBS said.

According to the National Statistics Office, inflation reached a 26-month high of 4.6 percent year-on-year in June, based on 2000 prices. This would put average inflation in the first semester to 4.3 percent.

But DBS maintains that, despite the likelihood of average inflation for 2011 settling lower than its forecast of 5.6 percent, inflationary pressures will continue to persist.

“To be sure, there are several signals that suggest inflation will pick up sequentially [month-on-month] in the coming months,” it added.

NSO data showed that there was no significant change between the prices seen in May and those of the previous month. However, the prices in June were 0.4 percent higher than that of the previous month.

Also, DBS notes that core inflation—the rate of change in consumer prices excluding those for items that are subject to volatility, such as food and fuel—has reached a 10-month high of 4 percent.

DBS said the rise indicated that demand-pull pressures had been building.

The group said the upward trend in growth of loans and money supply remained. These, along with an excess supply of investable funds, are seen to be problem since they may stoke inflation.

“As such, growth and inflation concerns are finely balanced at the moment,” DBS said. “With inflation less of an immediate issue, we believe the Bangko Sentral ng Pilipinas may be disinclined to raise rates at the next monetary policy meeting on July 28.”

Even then, DBS still expects the regulator to raise policy rates twice this year in 25 basis-point increments.