July inflation may go down to as low as 2.8%, says BSP

The Bangko Sentral ng Pilipinas (BSP) said the July inflation rate is likely to go down to as low as 2.8 percent as food imports continued to stabilize the prices of basic commodities.

BSP governor Rafael Buenaventura told reporters over the weekend that the July inflation rate is estimated to be within the 2.8 percent to 3.3 percent range and there is no indication of a sudden upswing in domestic prices in the coming months.

According to Buenaventura, the 30-centavo per kilowatt hour reduction in power rates also contributed to the slowdown in inflation rate.

The inflation rate is a key economic indicator that reflects the movements in the consumer price index (CPI) which in turn tracks the movements in the prices of basic commodities including food, fuel, utilities, clothing and shelter.

Higher inflation means prices are moving up faster and lower inflation means prices are still increasing, albeit at a slower rate.

The country’s inflation rate has been on a downtrend since the beginning of the year primarily due to the government’s policy of allowing imports to mitigate upswings in domestic prices, particularly in the food sector which accounted for the bulk of the CPI.

According to Buenaventura, this has resulted in the continued stability of food prices, ultimately contributing to the benign inflation for the whole year. The government’s target is to keep inflation within the 4 to 5.5 percent range.

Buenaventura said the stability in domestic prices has given the Monetary Board the room to keep local interest rates down since the liquidity in the system is not creating any inflationary pressures.

If there is liquidity-related inflationary pressure, Buenaventura said, it would be immediately mitigated by the stability of food prices which have been resisting upward pressures despite the disruptions in the supply chain due to erratic weather conditions.

The El Niño weather phenomenon was originally expected to put some pressure on domestic agricultural production but the government has long ruled out the possibility of skyrocketing domestic prices since the country started liberalizing its agricultural imports.

This year, the National Food Authority has the authority to import over one million metric tons of rice to fill up the gap between domestic production and demand, especially with the anticipated onset of the El Nino phenomenon towards the end of the year.

Economic Planning Secretary Dante Canlas said the government was not worried about agricultural supply since imports would continue to keep food prices stable. He said the target inflation for the whole year is still 4.5 percent to 5.5 percent but there were indications that the rate would be lower this year.

"The emerging number is between 3.2 and 3.5 percent," Canlas said.