Inflation likely flat in July: DOF

Inflation likely flat in July: DOF

- in Economy

The rate of increase in consumer prices likely steadied last month as the slowdown in food and education costs would offset the general rise in prices of other widely used goods.

In the latest Department of Finance DOF) economic bulletin, Finance Undersecretary Gil Beltran said inflation may have settled at 1.9 percent in July, similar to the previous month, but higher compared with the 0.8 percent registered a year ago.

The July inflation forecast is still below the Central Bank’s two percent to four percent target range for 2016, implying that the country could sustain its ongoing rapid economic growth of about seven percent, Beltran pointed out.

Likewise, the DOF projection is well within the 1.5 percent to 2.4 percent forecast of the Bangko Sentral ng Pilipinas (BSP) for the month of July.

“Price index of big-ticket item housing, utilities and fuels group is expected to inch up as base effects are being exhausted,” Beltran said in a report submitted to Finance Secretary Carlos Dominguez.

Beltran also noted that the rates imposed by electricity distributor Manila Electric Co. (Meralco) have increased by 3.4 percent in July compared with the previous month.

But the finance official also added “the slowing down in food price and education prices, however, may serve as counter-balance.”

Inflation logged 1.9 percent in June, the highest since averaging 2.2 percent in April last year, due to higher food prices, tuition and electricity rates.

Based on the DOF’s estimate, the food price index is seen to rise by 2.5 percent in July, modestly at a slower pace than the previous month’s 2.9 percent.

“In the foreseeable near-term, the general price level is expected to be stable, giving policy makers ample room for maneuver against external shocks,” Beltran said.

The latest DOF estimate would yield a seven-month average of 1.4 percent, or way below the inflation target set by the BSP for 2016.

During the last rate-setting meeting of the central bank, the Monetary Board decided to lower its inflation forecast this year from 2.1 percent to two percent, but kept the 3.1 percent projection for 2017 and 2.6 percent for 2018.

The lower than expected inflation this year, along with robust domestic demand allowed the central bank to retain key interest rates steady for 14 consecutive rate-setting meetings since October 2014.

Based on a recent BSP survey from June 8 to 30, economists of private banks have slashed anew their inflation forecasts for the year from the previous 1.9 percent to 1.8 percent due to soft oil prices, cheaper utility rates, and slower global economic growth.

They also believe that much favorable inflation scenarios outweigh the upside risks brought by the El Niño phenomenon, the rebound in oil prices, power rate adjustments, expected occurrence of La Niña in the latter part of 2016, and holiday related spending in the fourth quarter.

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