Inflation quickens to 2.5 percent in June as gov't loosens virus lockdowns

ABS-CBN News

Posted at Jul 07 2020 09:11 AM | Updated as of Jul 07 2020 11:02 AM

Metro Manila Development Authority Spokesperson Celine Pialago gestures as she shows a portion of the EDSA inner lane bus stops during a tour of the bus augmentation lane along the Epifanio Delos Santos Avenue (EDSA) on June 29, 2020. ABS-CBN News/File

MANILA (UPDATE) – Philippine inflation picked up in June, the first full month that saw Metro Manila easing quarantine restrictions, government data released Tuesday showed.

The consumer price index rose 2.5 percent in June, the first acceleration noted in five months the Philippine Statistics Authority (PSA) said, due to an upward trend in transport costs among others.

This is at the upper range of the Bangko Sentral ng Pilipinas' (BSP) forecast of 1.9 to 2.7 percent for the month, while a Reuters poll of 13 economists showed a median estimate of 2.2 percent inflation in June.

Core inflation, which excludes volatile food and fuel prices, was at 3 percent. 

"The latest inflation outturn is consistent with the BSP’s prevailing assessment that inflation pressures remain limited due largely to the adverse impact of the COVID-19 pandemic on the domestic and global economic conditions,” the Bangko Sentral ng Pilipinas said in a statement.

June inflation rose to 2.5 percent. Data: Philippine Statistics Authority. Processed by: ABS-CBN Data Analytics

"Now that the economy has reopened there’s a lot of demand for transport and we’ve seen the recovery in world oil prices, you have excise tax on oil," BDO Unibank chief market strategist Jonas Ravelas told ANC.

Food and transport inflation. Data: Philippine Statistics Authority. Processed by: ABS-CBN Data Analytics

Transport inflation hit 2.3 percent in June, from negative 5.6 percent in May. Alcoholic beverages and Cigarettes inflation reached 18.5 percent.

Health inflation was steady at 2.8 percent excluding personal protective equipment, which is now a major expense for the public due to COVID-19.

Inflation across commodity groups. Data: Philippine Statistics Authority. Processed by: ABS-CBN Data Analytics

BSP Governor Benjamin Diokno earlier said, inflation is the “least of their worry” at the moment, as it stands ready to use a “full range” of monetary tools as needed to support the economy.

The BSP forecast inflation to average 2.3 percent this year and 2.6 percent in 2021, higher than the April estimates but well within the official target of 2 to 4 percent for both years. 

Inflation could peak in the next few months and settle between 2.3 percent to 2.4 percent by the end of the year, Ravelas said. 

The Bangko Sentral ng Pilipinas cut key interest rates by 175 basis points this year, bringing the benchmark to a record low of 2.25 percent. 

Ravelas said there could be more room to cut rates and reserve requirements but the government should flatten the curve of COVID-19 infections to further improve business sentiment. 

BPI lead economist Jun Neri flagged risks of having an inflation lower than interest rates. 

"If interest rates are kept too low for too long, inflation may be stable but asset prices could be increasing by too much. At this point maybe not yet," Neri said. 

The "conservatism" in terms of spending on COVID-19 response and funding of stimulus packages makes sense since the government needs to save while collecting funds remains difficult, Neri said. 

"They can’t really use up all their ammunition, that’s where conservatism makes sense," Neri said. 

Economic recovery is likely to drag due to the coronavirus pandemic, ING Philippines senior economist Nicholas Mapa earlier said.

“Until we get that vaccine out and everyone is protected against COVID-19, we’re going to see this very gradual grind in terms of economic growth, very limited room for commodity prices to really pickup the phase," Mapa said.

The Philippine economy could contract up to 3.4 percent this year due to the coronavirus pandemic, based on government estimates. 

Watch more in iWantTFC

--with a report from Warren De Guzman, ABS-CBN News and Reuters