Headline inflation drops to 4.4% in June
MANILA – The country's inflation rate slowed to 4.4% in June 2014 from 4.5% in May, supporting a manageable and within-target outlook for the year, the National Economic and Development Authority (NEDA) said on Friday, July 4.
The country’s headline inflation in June 2013 was 2.7%.
NEDA expects that the country’s headline inflation rate for full-year 2014 will average around 4.4%, still within the Development Budget Coordination Committee’s (DBCC) full-year target of 3% to 5%, said NEDA Director General Arsenio Balisacan.
Decelerating growth in prices of non-food items tempered the inflation rate in June 2014 but faster growth in food prices pushed up the rate to the higher end of the target.
Consumer price indices
Increases in prices of consumer items at the national level slowed down to 0.4% in June. Prices of the heavily-weighted food items such as rice, garlic, sugar, pork, chicken, eggs, and ginger went up during the month. Tuition fee hikes at the opening of classes for the current school year were also noted in many provinces, the Philippine Statistics Authority (PSA) said.
These were, however, tempered by the lower charges in electricity rates and price reductions in liquefied petroleum gas (LPG), kerosene, and firewood in the National Capital Region and in many provinces, PSA added.
Core inflation, which nets out fuel and certain food items, also decreased to 2.8% in June, the same in June 2013, and lower compared to 3.1% in May. For the first 6 months in 2014, core inflation averaged at 3%.
Inflation rate in the National Capital Region (NCR) decreased to 3.6% in June, slower than the year-on-year rate of 3.8% in May versus June 2013’s 1.6%. The annual hikes in the consumer price indices (CPI) of alcoholic beverages and tobacco; housing, water, electricity, gas and other fuels; and recreation and culture decelerated during the month, PSA said.
Outside NCR, inflation rate remained stable at 4.7% last month, the same level in May. Inflation a year ago was 3%. The indices of health, communication, and education retained their previous month’s rate. However, a faster annual uptick was noted in the heavily-weighted food and non-alcoholic beverages index while slower annual growths were posted in the rest of the commodity groups, PSA added.
The HSBC Global Research economic report cited some negative supply shocks arising from the aftermath of typhoon Yolanda (super typhoon Haiyan) are dissipating, including housing prices.
Food prices are still elevated and will continue to increase in the coming months, HSBC said on Friday, July 4. Food inflation rose a staggering 7.4% year-on-year in June.
“With the impact of the positive output gap still filtering through and food and energy prices expected to spike…headline inflation will approach the upper end of the Bangko Sentral ng Pilipinas' (BSP) 2014 3% to 5% target range,” HSBC stated.
Despite the outlook of manageable and within-target inflation growth for 2014, there are risks that the country need to weather in the coming months.
Excess liquidity remains a headache, HSBC noted. M3 – the measure of money supply – decelerated to 28.1% year-on-year in May from 32.1% in April, but still remains high.
Acceleration of credit growth, which rose 19.6% in May from 19.4% in April, further stoked inflationary pressures, HSBC noted. As such, BSP will be lowering both the lower and upper ends of its inflation target in 2015, to a range of 2% to 4% (from 3% to 5% in 2014), HSBC noted.
“We see this target being breached unless the BSP tightens monetary policy further to mop up liquidity and dampen demand. We forecast headline inflation to average 4.2% year-on-year in 2015,” HSBC said.
HSBC quoted BSP Governor Amando Tetangco Jr’s previous pronouncement that BSP is mindful of second-round CPI and the central bank will adjust policy levers as appropriate.
To date, the BSP raised the special deposit account (SDA) rate by 25bp to 2.25% in the previous meeting. The central bank also increased the reserve requirement ratio (RRR) by 2ppt to 20% in the past meetings.
“We believe the BSP will raise rates further, as inflationary pressures are still high and June's deceleration is primarily led by the slowdown of housing prices. At the 31 July meeting, the BSP will likely increase the main policy rate (reverse repurchase agreement) by 25bp, taking the rate to 3.75%,” HSBC said.
Long term measures
To maintain and manage inflation growth, NEDA is outlining measures for long-term structural issues such as weather disturbances, pests and diseases, pending petitions for adjustments in utility rates, and the still elevated growth of domestic liquidity.
For instance, ensuring supply adequacy by allowing sufficient levels of imports to augment local production of rice and other key commodities are interventions that could be implemented for the short-term, Balisacan said.
Reviewing the truck ban, along with other distribution systems is needed to improve efficiency, Balisacan added.
NEDA said the threat of El Niño in the third quarter is a major concern and government programs should be intensified to curb the impact of a prolonged dry spell.
In the medium-term, implementing programs to boost agricultural productivity and accelerating food processing industries are a must, Balisacan noted.
“The wider use of appropriate technology, especially in production areas vulnerable to drought and floods, also needs to be encouraged,” he said.
As such, Public-Private Partnership (PPP) programs may be considered to put up cold chain systems.
“The concept of using cold chain technologies in the agriculture sector should be done on a gradual basis, from some selected operations and for the whole distribution chain,” Balisacan said. – Rappler.com