Inflation likely unchanged in June

INFLATION could have steadied in June due to lower power rates and a moderation in food and fuel price growth, analysts said, further raising the possibility of interest rate cuts beginning August.

The median forecast in a Manila Times poll of economists was 3.9 percent, unchanged from the May result and within the Bangko Sentral ng Pilipinas' (BSP) 2.0- to 4.0-percent target.

It also fell within the central bank's 3.4- to 4.2- percent estimate for the month, which in comparison is lower than the 3.7–4.5 percent forecast it issued for May.

All but one of the economists expect consumer price growth to have remained within target for a sixth straight month despite the rate having picked up since February.

Official inflation data for June will be released by the Philippine Statistics Authority this Friday.

Dean Emmanuel Lopez of the Colegio de San Juan de Letran Graduate School had the lowest forecast of 3.6 percent, which he said would be due to stable food prices and a slight peso rebound.

While the BSP has said that an improved inflation outlook could lead to a rate cut in August, Lopez said that monetary policy was likely to be kept tight "because, by and large, inflation is still high."

HSBC Global Research economist Aris Dacanay, meanwhile, attributed his 3.7-percent forecast to lower electricity rates, which "represents a big fall in the inflation outlook."

Manila Electric Co. this month implemented a P1.9623 per kilowatt-hour (kWh) rate cut instead of an earlier announced hike of P0.6436/kWh, given an Energy Regulatory Commission order to stagger the collection of charges arising from Wholesale Spot Electricity Market purchases in May over the next four months.

Dacanay, however, said the impact of lower power prices was likely offset by slightly higher rice and diesel prices, inflationary pressures from calamansi, snow cabbages, and eggplants, and higher costs of imported goods due to the peso's weakness.

"With June inflation soft and the outlook pointing to even more disinflationary pressures, we believe the Bangko Sentral ng Pilipinas will continue to hint at its increasing monetary policy independence from the Fed throughout the remaining months of the year," he added.

Bank of the Philippine Islands Emilio Neri also said that lower monthly electricity prices would have helped temper overall price growth, which is expected to have hit 3.8 percent in June.

"If print for both June and July stay close or below 4 percent, we think the chances of a BSP Monetary Board RRP (reverse repurchase or policy rate) cut in August will be pretty high whether the FOMC (US Federal Reserve's Federal Open Market Committee) cuts rates in July or not," Neri said.

Philippine National Bank economist Alvin Arogo, Union Bank of the Philippines chief economist Ruben Carlo Asuncion, Pantheon Macroeconomics economist Miguel Chanco, and ANZ Research economist Arindam Chakraborty, meanwhile, all said that inflation was likely unchanged at 3.9 percent.

The rate, Arogo added, could average 2.6 percent in the second half of the year, down from 3.6 percent in the first semester and mainly due to lower tariffs on imported rice.

"However, upside risk can come from a possible spike in oil prices driven by the escalation in Middle East tensions, potential for further peso weakness, and if the fresh round of wage adjustments substantially exceeds the recent inflation trend," he added.

Asuncion, meanwhile, said that food inflation could fall further as the year progresses as supply shocks subside.

Chanco noted that while food inflation could temporarily rebound, it would be fully offset by a turnaround in transport inflation due to correcting global oil prices.

Chakraborty, for his part, said that annual food inflation would be flat due to softer international rice prices, while lower electricity prices would have helped reduce annual utilities inflation.

Security Bank Corp. chief economist Robert Dan Roces and Rizal Commercial Banking Corp. chief economist Michael Ricafort both believe that inflation increased in June but stayed within target at 4.0 percent.

Roces pointed to slower food and transport cost increases that would have been balanced by rising utility costs and said the rate could top 4.0 percent this month.

"We expect inflation to remain elevated but moderate in July and August, returning to the target range by September. This forecast, based on recent economic trends and policy decisions, suggests a gradual easing of inflationary pressures," he added.

Ricafort, meanwhile, said that the continued easing of base effects would most likely help inflation stay within the target range.

"Thus, further local policy rate pause or even possible rate cut/s could already be possible for the coming months, as fundamentally supported by the easing inflation trend as seen recently," he added.

Sun Life Investment Management and Trust Corp. economist Patrick Ella was the only analyst to predict above-target June inflation, which he attributed to "base effects."

Last Friday, the BSP said that higher rice, vegetables, meat, and fish prices, along with the peso's weakness and fuel price hikes, "are the primary sources of upward price pressures" for June.

"Meanwhile, lower electricity rates and fruit prices could contribute to the deceleration in inflation," it added.

The central bank said it would "continue to monitor developments affecting the outlook for inflation and growth in line with its data-dependent approach to monetary policy formulation."

On Thursday, BSP Governor Eli Remolona Jr. said that monetary authorities still expected inflation to breach target until July but then decline for the rest of the year.

The central bank's policymaking Monetary Board kept key rates unchanged for a sixth consecutive meeting last week and also lowered its inflation forecasts for 2024 and next year.

The risk-adjusted forecast for this year was trimmed to 3.1 percent from 3.8 percent, and that for 2025 was also cut to 3.1 percent from 3.7 percent.

The baseline forecasts for 2024 and 2025, meanwhile, were lowered to 3.3 percent and 3.1 percent, respectively, from 3.5 percent and 3.3 percent.

The BSP's benchmark rate currently stands at 6.5 percent, the highest since 2007, after 450 basis points of rate hikes beginning May 2022 as inflation started surging in the wake of Russia's invasion of Ukraine.

Remolona on Thursday doubled down on the possibility of the BSP easing ahead of the Fed, saying that two cuts totaling 50 basis points could be ordered this year.