Inflation eases to 4.4% in June as prices of tobacco, alcoholic drinks drop

(Updated 4:19 p.m.) Inflation slightly eased in June as softer prices of alcoholic beverages, tobacco and utilities tempered higher prices of food products, the Philippine Statistics Authority (PSA) reported Friday.

 

Consumer prices slowed to 4.4 percent in June from 4.5 percent in May, but faster compared with 2.7 percent a year earlier, PSA data showed.

 

The June inflation was lower-than-than expected, Bank of the Philippine Islands economist Nicholas Mapa told GMA News Online in a phone interview, noting the "market anticipated consumer prices to be faster than in May."

 

"Slower annual increments were recorded in the indices of alcoholic beverages and tobacco; housing, water, electricity, gas and other fuels; transport; and recreation and culture," the PSA said.

 

Decelerating growth in prices of non-food items tempered the inflation rate in June 2014, but faster growth in food prices pushed the rate toward the higher end of 3 to 5 percent the government is targeting for the year, Economic Planning Secretary Arsenio Balisacan said in a separate e-mailed statement. 

 

“One of the main reasons for the high price of food is the rather sharp increases in rice prices in June 2014 as supply tightness persisted in the market,” he said.

 

The PSA said the housing, water, electricity, gas and other fuels index fell by 0.8 percent and a slower price increase was seen in the alcoholic beverages and tobacco index at 0.1 percent from May. 

 

The biggest drag in consumer prices was lower power rates, Mapa said.

 

Manila Electric Co. (Meralco) announced electricity bills for June were lower by 84 centavos per kilowatt hour, or about P168 per 200 kWh compared with May, due to lower generation and transmission charges.

 

However, a supply shortage in garlic and rice drove prices of food higher.

 

"Supplies of garlic in the markets fell short than the targeted consumer requirements," the PSA said. The shortage pushed the vegetable index higher by 6.3 percent.

 

The rice index at the national level accelerated by 1.1 percent as nine regions had higher monthly price add-ons, the PSA added.

 

In the past few weeks, the price of imported garlic has been hovering at P300 to P400 per kilo in Metro Manila while commercial rice prices increased by P2 per kilogram.

 

 

The price of rice rose P2 per kilo in public markets and will normalize by September when farmers start to harvest, according to the National Food Authority.

 

Meanwhile, low supply of pork and poultry products in the market also drove food prices higher, the PSA noted.

 

The latest inflation rate brought the year-to-date average to 4.2 percent, still at the upper end of the government target.

 

The National Economic and Development Authority expects headline inflation rate to average around 4.4 percent this year, said Balisacan, who is concurrently NEDA director-general.

 

But the agency highlighted upside risks to inflation such as weather disturbances, pests and diseases, pending petitions for adjustments in utility rates, and the still elevated growth of domestic liquidity.

 

“In the short term, the interventions can focus on ensuring supply adequacy by allowing sufficient levels of imports to augment local production of rice and other key commodities. The truck ban policy also needs to be reviewed, along with other measures needed to improve the efficiency of distribution systems,” Balisacan said.

 

With El Niño expected to begin in the third quarter, Balisacan reiterated the need to intensify government programs to curb the adverse impact of a prolonged dry spell.

 

The Department of Science and Technology said the peak of El Niño when the highest temperatures may be felt will occur in the last quarter of 2014 and may last until the first quarter of 2015.

 

Even if the rainy season starts, the higher temperatures brought about by El Niño will have adverse effects on crop production, BPI's Mapa said.

 

"We may not see optimal level of production as we have seen last year due to higher temperatures," he said.

 

Higher jeepney fares and tuition fees in colleges and universities also pose structural pressures to inflation, the economist added.

 

The Land Transportation Franchising and Regulatory Board approved a 50-centavo increase in minimum jeep fares starting June 14.

 

The Commission on Higher Education has allowed 171 colleges and universities nationwide to increase tuition rates in May which could still increase, and the Department of Education has allowed 1,299 private schools to increase tuition fees by five to 35 percent for the academic year 2014 to 2015.
 

"We may see inflation accelerate close to 5 percent in the next two to three months due to base effects, higher jeepney fares and tuition fee hike and eventually slow down towards the end of the year," Mapa said. – TJD/VS, GMA News