Inflation up in June, first-half average below target

Inflation picked up in June on higher costs of alcohol and tobacco products, medicine and health care, transportation, recreation and culture, and education.

 

The first half inflation average, however, fell below the central bank's target cementing beliefs that policy will remain expansionary.

 

In a statement Friday, the National Statistics Office reported consumer prices rose by 2.8 percent in June from 2.6 percent in May. 

 

The June inflation was within the Bangko Sentral ng Pilipinas' 2 to 2.9 percent forecast for the month and slightly above the median forecast of 2.75 percent in a GMA News Online poll. 

 

“This was due to higher annual increments in the indices for alcoholic beverages and tobacco; health; transport; recreation and culture; and education,” according to NSO. 

 

The latest inflation data pulled the year-to-date average to 2.9 percent, still below the Bangko Sentral's 3 to 5 percent target for the year. 

Policy stance

 

In a text message to reporters, Bangko Sentral Governor Amando Tetangco Jr. said the figure “further supports our assessment of manageable inflation and the appropriateness of our current policy stance.”

  

The Monetary Board has kept policy rates—the benchmark of bank loans—at record lows of 3.5 percent for overnight borrowing and 5.5 percent for overnight lending since October. 

 

Bank of the Philippine Islands economist Nicholas Antonio Mapa said the latest inflation figure “will allow the central bank to maintain policy rates at an accommodating stance.”

 

“Benign inflation is also seen to provide room for the central bank to further cut SDA rates,” he added.

 

Since January, Bangko Sentral slashed the yield of special deposit accounts (SDA)—a monetary tool to mop up excess liquidity—thrice to to 2 percent.

 

Higher yields against other investment instruments mop up liquidity in the financial system, while lower rates flush money out into the economy.

 

Mapa said inflation will likely remain benign the rest of the year, noting the upside risk at this point is coming from higher crude oil prices in the world market amid geopolitical tensions in oil-rich Middle East. 

 

Tetangco maintained that monetary authorities will remain on the look out for upside risks and will tweak policy as needed. 

 

“[T]he BSP will continue to monitor external developments, particularly any changes in the monetary policies of and assessments in the demand conditions by AEs (advanced economies) in their jurisdiction,” Tetangco said. 

 

“We will monitor the impact of these on global and domestic investor sentiment and growth dynamics to see if there is any need to adjust our own policy settings,” he added. — VS, GMA News