Inflation in June eases, but oil prices pose a risk

The British research firm says that PH does not meet the inflation target

AFP image

While inflation eased in June to 4.1 per cent year-on-year or the lowest monthly interest rate so far in 2021, normalized global oil prices pose upward risks in the second half of the year and are likely to keep overall price increases above the central bank’s target.

At a press conference on Tuesday, national statistician Dennis Mapa attributed the lower rise in prices of basic commodities last month mainly to base effects, as transport inflation declined from a year ago as prices of tricycles and jeepneys rose sharply due to the strict COVID -19 quarantine measures , which limited both supply and demand for public transport.

Transportation inflation fell to 9.6 per cent year-on-year in June from 16.5 per cent in May.

Price increases in tricycle and jeepney dropped to 17.6 percent and 4.3 percent, respectively, from corn 38.8 percent and 6.3 percent, respectively.

Food prices

Socio-economic planning secretary Karl Kendrick Chua said the lower inflation in June was also a result of government intervention to lower food prices, particularly pork, which rose early this year primarily due to African swine fever (ASF) crisis. Data showed that meat inflation slowed to 19.2 percent last year from as high as 22.1 percent in April and May. Meat prices in June also fell by 0.3 per cent compared to the May level.

No interest rate increase

Bangko Sentral ng Pilipinas (BSP) said that inflation in June reinforced its projection that the pace of price increases on basic goods and services would decline towards the end of the year.

In a statement, however, the BSP said that the consumer price index (CPI) will remain relatively high at the moment, with inflation in June 2021 at 4.1 percent “in line with expectations that inflation may remain above the target in the short term as meat and oil prices remain high. ”

The latest inflation was within BSP’s expected range of 3.9 to 4.7 percent.

“Average inflation is expected to settle at the high end of the target range of 2 to 4 percent in 2021,” the central bank said. “However, price pressures appear to be easing, leading to a reversal of average inflation near the midpoint of the 2022 to 2023 target.”

Meanwhile, oil and fuel also showed lower inflation of 21.5 percent last month compared to the 33 percent jump in May.

But Mapa admitted that oil could be a “potential threat” to ease inflation as prices here and abroad continued to normalize along with improving the global economic outlook from last year’s pandemic-induced downturn.

Mapa noted that while petroleum and personal consumption fuels accounted for only 2 percent in the CPI basket of goods, last month’s price increase contributed 51.5 percent to overall inflation in June.

In a note to clients, Pantheon Macroeconomics’ senior economist in Asia, Miguel Chanco, said that “favorable base effects in transport helped bring inflation down, but the third quarter has no such support and we expect transport inflation to rise through the second half of the year thanks be oil price gains. ”

“Inflation in housing and utilities continued to rise in June, but its contribution is expected to rise more markedly in the coming months given the delay in oil prices. Similarly, food inflation contributed stably 1.8 percentage points (ppt) to the headline in June, but global food price developments point to an increase despite the government’s supply side to prevent it, ”Chanco said.

As such, Chanco’s expected inflation would “move further away” from the upper end of Bangko Sentral ng Pilipinas (BSP) 2-4 percent target range in the second half. Overall inflation averaged above the target of 4.4 percent in the first half of the year.

Chanco said slow economic recovery would prevent the BSP from raising interest rates, especially as “herd immunity is still far away from that of other Asian countries due to slow vaccinations and one of the region’s highest levels of vaccine hesitation.”

In a statement, the state economic planning agency National Economic and Development Authority (Neda) said “the cost of transport services remains high mainly due to social distance measures and the recovery of global oil prices”, although prices “will fall in the short term with the government’s accelerated vaccination program . ”

“Keeping transportation costs low complements our efforts to safely bring people to their workplaces. We are speeding up the vaccination of the A4 priority group for workers to protect them and their families when they make money. These efforts will help the economy recover strongly in 2021, ”said Karl Kendrick Chua, Socio-Economic Planning Secretary.

Inflation among poor families belonging to the lower 30% of households, meanwhile, fell to 4.3 per cent in June – also the lowest monthly rate so far this year, but still higher than the overall figure, which meant that they scaled down more money for their basic necessities.

Mapa said inflation among the country’s poorest households also declined due to slower increases in transportation costs as well as the prices of alcoholic beverages and tobacco.

According to the BSP, the effective implementation of direct non-monetary measures will be crucial to alleviate further supply-side pressures and add that the risk of the inflation outlook also “remains broadly balanced.”

“The rise in international commodity prices due to bottlenecks in the supply chain and the recovery in global demand may lead to upward pressure on inflation,” it said. “However, the risk of downward inflation outlook continues due to the emergence of new coronavirus variants, which may delay the easing of lockdown measures and temper the outlook for domestic growth.”

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