BSP: June inflation settled at 3.4 - 4.2 percent

MANILA, Philippines — Headline inflation likely settled within the 3.4 to 4.2 percent range in June, according to the Bangko Sentral ng Pilipinas (BSP).

“Increases in the prices of agricultural commodities like rice, vegetables, meat, and fish, along with the peso depreciation and higher domestic oil prices, are the primary sources of upward price pressures for the month,” the BSP said in a statement.

However, lower electricity rates and fruit prices could contribute to downward price pressures for the month.

“Going forward, the BSP will continue to monitor developments affecting the outlook for inflation and growth in line with its data-dependent approach to monetary policy formulation,” it added.

Inflation picked up to a six-month high of 3.9 percent in May, bringing the five-month average to 3.5 percent, still within the BSP’s two to four percent target.

BSP Governor Eli Remolona Jr. earlier said inflation could peak in July, possibly breaching the two to four percent target, before returning back to within target in the third quarter.

However, a sustained improvement in the inflation outlook would allow more scope to consider a less restrictive monetary policy stance, he said.

The BSP kept the key interest rate at a 17-year high of 6.5 percent for the sixth straight meeting on Thursday, but risks to inflation have now shifted to the downside, providing the central bank room to “more likely” ease in August.

Security Bank chief economist Robert Dan Roces said inflation likely picked up to four percent in June, reaching the upper limit of the BSP’s two to four percent target.

“This reflects slower food and transport cost increases balanced by rising utility costs,” he said, adding that inflation pressures may gradually ease in the coming months amid recent economic trends and monetary policy decisions.

“We expect inflation to remain elevated but moderate in July and August, returning to the target range by September,” he said.

Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, said headline inflation may come in unchanged at 3.9 percent in June due to favorable food-price base effects.

This would also drag down inflation in July, even without the recent reduction in rice tariffs.

“Underlying price pressures also continue to wane, with core inflation probably softening to a 25-month low of three percent this month, before fading further in the second half,” Chanco said.

However, economic growth may slip to 5.2 percent this year from 5.5 percent in 2023 due to a continued slowdown in household consumption and investments. This would then prompt the BSP to ease by a total of 75 basis points in the second half.

“Our core view still is that the Monetary Board will start a gradual normalization of policy in August with a 25-basis-point rate cut, following this on with similar-sized reductions in the October and December meetings,” he added.