As prices of major consumer items remain elevated, the Monetary Board decided to raise the overnight reverse repurchase facility of the Bangko Sentral ng Pilipinas (BSP) again by another half-percentage point to 4.25 percent.

Accordingly, the interest rates on the overnight deposit and lending facilities were raised to 3.75 percent and 4.75 percent, respectively.

This is the fifth consecutive tightening action by the Monetary Board this year. The key rates have been raised by a total of 225 basis points to combat broadening price pressures.

Francisco Dakila, BSP deputy governor, said that in deciding to raise the policy rate anew, the Monetary Board noted that price pressures continue to broaden.

“The rise in core inflation indicates emerging demand-side pressures on inflation. Moreover, second-round effects continue to manifest, with inflation expectations remaining elevated in September following the approved minimum wage and transport fare increases.

Nonetheless, inflation expectations continue to be broadly anchored over the medium term,” Dakila said.

Yesterday’s action by the Board came after the Federal Reserve raised US rates again by 75 basis points on Wednesday to beat down the country’s inflation and indicated that they could go even higher than investors have expected.

The Board stressed the risks to the Philippine inflation outlook “remain tilted toward the upside until 2023 and broadly balanced in 2024.”

Full-year inflation average is now pegged at 5.6 percent, breaching the government’s full-year target range of between 2 and 4 percent by more than one-and-a-half percentage point.

For 2023, inflation is seen to still breach the target, albeit slightly, at 4.1 percent before slowing down to 3 percent the following year.

“Price pressures may continue to emanate from the potential impact of higher global non-oil prices, pending petitions for further transport fare hikes, the impact of weather disturbances on prices of food items, as well as the sharp increase in the price of sugar,” Dakila said.

After five consecutive months of uptrend, the country’s inflation slightly eased in August to 6.3 percent due mainly to lower annual increases in transportation, food and non-alcoholic beverages.

The actual average inflation from January to August now stands at 4.9 percent, way above the full-year average target.

But core inflation, which excludes volatile food and energy items, shoot up to 4.6 percent from 3.9 percent in July.

Dakila said they have yet to release their inflation forecast for September but economists see this possibly higher than August’s figures.

“Given elevated uncertainty and the predominance of upside risks to the inflation environment, the Monetary Board recognized the need for follow-through action to anchor inflation expectations and prevent price pressures from becoming further entrenched.” Dakila said.

Dakila also stressed “the impact of a weaker-than-expected global economic recovery continues to be the main downside risk to the outlook.”

“The domestic economy can accommodate a reasonable tightening of the monetary policy stance, as demand has generally held firm owing to improved employment outturns and ample liquidity and credit.At the same time, the Monetary Board also continues to urge the National Government to implement timely non-monetary interventions to mitigate the impact of persistent supply-side pressures on food and other commodity prices,” Dakila added.

Economists at the Bank of the Philippine Islands (BPI) said despite the recent slowdown in inflation, they still “continue to see upside risks that could push inflation higher in the coming months.”

“In a conservative scenario, inflation may reach a peak of 7 percent in October and stay above 6.5 percent until the end of the year. Data shows we only need to see a 0.3 percent CPI uptick to hit 6.7 percent inflation in September, half of the YTD average rise of 0.6 percent. This will bring the average inflation for the year to 5.5 percent,”BPI said in a statement.

The bank said supply constraints in the agriculture sector due to structural problems and bad weather will likely continue to drive the increase in food prices.

“Even with increased importation, a decline in prices is not guaranteed since the price of global food commodities is also rising at a very fast rate. There is also an issue on how fast the country can import given the disagreements and objections related to importation,”it said.

“Considering the uncertainties both here and abroad, we expect the BSP to hike again in the last two meetings of the year, up to 5.25 percent depending on what the Fed will do and the behavior of the exchange rate,” the bank added.

The Monetary Board is expected to raise by another 50 basis points the key rates of the Bangko Sentral ng Pilipinas this week even as inflation dipped in August.

The move will be the fifth consecutive time this year that the Board has decided to raise the key rates as latest inflation forecasts have shifted higher and have breached the government’s target.

BSP’s overnight reverse repurchase facility now stands at 3.75 after it went up by 50 basis points last month.

The interest rates on the overnight deposit and lending facilities were raised to 3.25 percent and 4.25 percent, respectively..

The Monetary Board has raised the key rates by a total of 175 basis points to combat broadening price pressures.

Felipe Medalla, BSP Governor, said during the last monetary policy stance meeting that the BSP’s latest baseline forecasts have shifted higher for 2022, with average inflation projected to breach the upper end of the 2-4 percent target range at 5.4 percent.

“While the forecasts for 2023 and 2024 have declined to 4.0 percent and 3.2 percent, respectively, the inflation target remains at risk over the policy horizon owing to broadening price pressures,” Medalla said.

He also stressed that “elevated inflation expectations likewise highlight the risk of further second-round effects.”

After five consecutive months of uptrend, the country’s inflation slightly eased in August to 6.3 percent due mainly to lower annual increases in transportation, food and non-alcoholic beverages.

In August last year, inflation rate was at 4.4 percent.

The average inflation from January to August now stands at 4.9 percent, way above the full-year average target of between two and four percent.

Core inflation, which excludes volatile food and energy items, stood at 4.6 percent from 3.9 percent in July.  In August last year, core inflation was at 2.8 percent.

In a poll conducted by Reuters, economists expect another 50 basis point rise to 4.25 percent at its Sept. 22 meeting “to support a weakening currency and blunt its effect on imported inflation.”

Down more than 11 percent for the year, the Philippines peso is one of Asia’s worst-performing currencies. Its poor showing against the US dollar, propped up by an aggressive Federal Reserve set to deliver another 75 basis point rise on Wednesday, has led to a record trade deficit and higher inflation.

Over 60 percent majority of economists polled, or 13 of 21, compared with half of economists forecasting 4.00 percent in the previous poll. If realized, that would push the borrowing rate to the highest since August 2019.

Six now expected a quarter point rise to 4.00 percent, one predicted a jumbo 75 basis point to 4.50 percent, and a lone voice in the Sept. 13-19 poll expected no move from the BSP.

“The US Fed’s aggressive moves at a time when the Philippines’ (balance of payments) is under pressure continues to exert pressure on the PHP,” noted Debalika Sarkar, economist at ANZ, referring to the peso currency.

“It is therefore conceivable that rate hikes will need to be more aggressive to minimize FX volatility and the passthrough to domestic prices.”

Over 75 percent, or 13 of 17, forecast the interest rate to be at 4.50 percent or higher by year-end – also the expected peak in this cycle – 50 basis points higher than in the previous poll.

Eight said 4.50 percent, and four said 4.75 percent. The remaining four said 4.25 percent or lower.

Despite inflation dipping to 6.3 percent in August from July’s four-year high of 6.4 percent, analysts said it hasn’t peaked yet, leaving scope for further rate hikes. The central bank targets inflation at 2-4 percent.

“A forceful approach by the BSP to bring forward future rate hikes to the September meeting would not only reduce upside inflation risks but also cement the central bank’s credibility and commitment to bring inflation back to its target,” noted Han Teng Chua, economist at DBS Bank.

Dennis Mapa, Undersecretary of the Philippine Statistics Authority, said the slowdown in inflation at the national level in August “was primarily due to the lower annual increment recorded in the index for transport at 14.6 percent, from 18.1 percent in the previous month.”  This was followed by food and non-alcoholic beverages whose index declined by 6.3 percent from 6.9 percent in July 2022.

On the other hand, inflation rates were higher for the following commodity groups during the month: alcoholic beverages and tobacco; clothing and footwear; housing, water, electricity, gas and other fuels; furnishings, household equipment, and routine household maintenance; health; recreation, sport and culture; education services; restaurants and accommodation services; and personal care, and miscellaneous goods and services.

Upside risks, according to Medalla, also continue to dominate the inflation outlook up to 2023.

Meanwhile, he said the “impact of a weaker-than-expected global economic recovery as well as the resurgence of local COVID-19 infections continue to be the main downside risks to the outlook.”

At the same time, Medalla said that despite some moderation in economic activity in recent months, overall domestic demand conditions have generally held firm, supported by improved employment outturns and by ample liquidity and credit.

“For these reasons, the Monetary Board deemed further monetary action to be necessary to anchor inflation expectations and avoid a further breach in the inflation target over the policy horizon. The favorable growth outcome in the first half of the year also gives the BSP the flexibility to act against inflation pressures while allowing domestic demand to sustain its recovery momentum amid prevailing headwinds,” Medalla said.  – with Reuters

After five consecutive months of uptrend, the country’s inflation slightly eased in August to 6.3 percent due mainly to lower annual increases in transportation, food and non-alcoholic beverages.

In August last year, inflation rate was at 4.4 percent.

The average inflation from January to August now stands at 4.9 percent, way above the full-year average target of between two and four percent.

Core inflation, which excludes volatile food and energy items, stood at 4.6 percent from 3.9 percent in July. In August last year, core inflation was at 2.8 percent.

Dennis Mapa, undersecretary of the Philippine Statistics Authority, said the slowdown in inflation at the national level in August “was primarily due to the lower annual increment recorded in the index for transport at 14.6 percent, from 18.1 percent in the previous month.”

This was followed by food and non-alcoholic beverages whose index declined to 6.3 percent from 6.9 percent in July 2022.

The index for information and communication also exhibited lower annual growth at 0.4 percent, from 0.5 percent in July 2022.

Inflation rates were higher for the following commodity groups : alcoholic beverages and tobacco; clothing and footwear; housing, water, electricity, gas and other fuels; furnishings, household equipment and routine household maintenance; health; recreation, sport and culture; education services; restaurants and accommodation services; and personal care, and miscellaneous goods and services.

Food prices down

“Inflation for food at the national level slid to 6.5 percent during the month, from 7.1 percent in July 2022. In August 2021, it was lower at 5.9 percent,” Mapa said.

He  said the following food groups exhibited faster annual growth during the month: rice by 2.2 percent; flour, bread and other bakery products, pasta products and other cereals by 8 percent; milk, other dairy products and eggs by 6.5 percent; oils and fats by 19.6 percent; fruits and nuts by 3.9 percent; sugar, confectionery and desserts by 26 percent; and ready-made food and other food products by 5.8 percent.

Inflation in the National Capital Region (NCR) increased to 5.7 percent in August from 5.1 percent in July due to the higher annual increases in the restaurants and accommodation services index, alcoholic beverages and tobacco and education services.

Following the trend at the national level, inflation in areas outside NCR slowed down to 6.5 percent, from 6.8 percent the previous month.

Mapa said six regions in areas outside NCR exhibited lower inflation in August, eight regions had higher inflation rates and two regions retained their previous month’s inflation rate.

“Region 9 (Zamboanga Peninsula) had the highest inflation rate of 9.1 percent, while the Bangsamoro Autonomous Region in Muslim Mindanao  remained as the region with the lowest inflation at 4.9 percent,” Mapa said.

Above-target

The August 2022 inflation outturn of 6.3 percent is within the Bangko Sentral ng Pilipinas’ (BSP) forecast range of between 5.9 to 6.7 percent.

“(It is) Consistent with the BSP’s assessment of elevated price pressures over the near term due to broadening price pressures. The uptick in inflation remains supply-driven, but signs of broadening price pressures are also being noted,” Felipe Medalla, BSP governor, said.

He stressed  the BSP’s baseline projections “continue to indicate above-target inflation in 2022, with inflation decelerating back to the target in 2023 and 2024 following the recent BSP policy rate hikes.”

“Upside risks continue to dominate the inflation outlook in the near term due to the potential impact of higher global non-oil prices, the continued shortage in domestic fish supply, the sharp increase in the price of sugar, as well as pending petitions for transport fare increases,” Medalla said.

Medalla noted “the impact of a weaker-than-expected global economic recovery as well as the resurgence of local COVID-19 infections” as the main downside risks to the outlook.

“The BSP’s recent policy actions are intended to bring inflation and inflation expectations back to the target to ensure the balanced and sustainable growth of the economy in the medium term. The BSP is prepared to take further policy actions to bring inflation toward a target-consistent path over the medium term, consistent with its primary objective to promote price stability,” Medalla said.

“The BSP also continues to urge timely implementation of non-monetary government interventions to mitigate the impact of persistent supply-side pressures on commodity prices,” he added.

For the fourth consecutive time this year, the Monetary Board last month decided to raise the key rates of the BSP.

BSP’s overnight reverse repurchase facility went up by 50 basis points (bps) to 3.75 percent. The interest rates on the overnight deposit and lending facilities were raised to 3.25 percent and 4.25 percent, respectively.

The Monetary Board has raised the key rates by a total of 175 bps to combat broadening price pressures.

“The BSP will continue to carefully monitor and assess pertinent economic developments that could affect the price dynamics and growth prospects of the country. The Monetary Board will update its assessment of the macroeconomic outlook as well as conduct its review of the monetary policy stance on September 22,” Medalla said.

Targeted subsidies

The National Economic and Development Authority (NEDA) meanwhile said “targeted subsidies, vibrant agriculture will help ease global inflationary pressures.”

“Recovery is uneven within countries and across countries, and this results in very inefficient supply chains. This is expected to be temporary as markets transition to find the new balance between supply and demand. The situation is made worse by the protracted Russia-Ukraine war, and the country’s weather disturbances particularly La Niña. These serve to magnify the low productivity in our agricultural sector, which needs to be supported immediately,” NEDA Secretary Arsenio Balisacan said.

Balisacan noted that inflation in neighboring Southeast Asian countries has been mostly in the uptrend, with Thailand recording its new 14-year high at 7.86 percent in August 2022. Singapore also recorded its fastest pace in more than 13 years with headline inflation at 7 percent in July 2022.

“It is our top priority to ensure that Filipino households have sufficient and healthy food on their table, especially the poorer sector of the society. We will continue implementing programs that reduce transport and logistics costs to bring inflation down and to protect the purchasing power of our consumers. Most importantly, it is imperative to transform Philippine agriculture into a dynamic and productive sector to speed up our recovery and significantly reduce poverty in the country,” Balisacan said.

For the fourth consecutive time this year, the Monetary Board yesterday decided to raise the key rates of the Bangko Sentral ng Pilipinas as latest inflation forecasts have shifted higher and likely to have breached the government’s target.

BSP’s overnight reverse repurchase facility are up by 50 basis points to 3.75 percent, effective today.

The interest rates on the overnight deposit and lending facilities were raised to 3.25 percent and 4.25 percent, respectively.

The Monetary Board has raised the key rates by a total of 175 basis points to combat broadening price pressures.

Felipe Medalla, BSP Governor, said the BSP’s latest baseline forecasts have shifted higher for 2022, with average inflation projected to breach the upper end of the 2 to 4 percent target range at 5.4 percent.

“While the forecasts for 2023 and 2024 have declined to 4 percent and 3.2 percent, respectively, the inflation target remains at risk over the policy horizon owing to broadening price pressures,” Medalla said.

He said “elevated inflation expectations likewise highlight the risk of further second-round effects.”

“Headline will still increase and will probably peak on the 10th or 11th month of this year.

Naturally, inflation will still be high by the first quarter of next year and will start to go down by the second half. All of these will depend on several factors. On the local front, it will be easier if we are able to address local supply pressures.” Medalla said.

The country’s annual headline inflation continued its uptrend to 6.4 percent last month, from 6.1 percent in June, the highest since October 2018.

With July’s inflation, the Philippines’ average inflation from January stood at 4.7 percent.

According to the Philippine Statistics Authority, the main source of the upward trend of July inflation was the higher annual growth rate in the index for food and non-alcoholic beverages at 6.9 percent, from 6 percent in the previous month. Transport index followed with 18.1 percent annual growth, from 17.1 percent in June 2022.

Upside risks, according to Medalla, also continue to dominate the inflation outlook up to 2023.

“(These are) Due to the potential impact of higher global non-oil prices, the continued shortage in domestic fish supply, the sharp increase in the price of sugar, as well as pending petitions for transport fare increases,” Medalla said.

He said the “impact of a weaker-than-expected global economic recovery as well as the resurgence of local COVID-19 infections continue to be the main downside risks to the outlook.”

Medalla said despite some moderation in economic activity in recent months, overall domestic demand conditions have generally held firm, supported by improved employment outturns and by ample liquidity and credit.

“For these reasons, the Monetary Board deemed further monetary action to be necessary to anchor inflation expectations and avoid a further breach in the inflation target over the policy horizon. The favorable growth outcome in the first half of the year also gives the BSP the flexibility to act against inflation pressures while allowing domestic demand to sustain its recovery momentum amid prevailing headwinds,” Medalla said.

A contractionary policy, by raising rates, limits the outstanding money supply to slow growth and decrease inflation and reduce the level of money circulating in the economy.

“We have to be data dependent. Thus far, we think our recovery is respectable enough to absorb further hikes. It is impossible for tightening to not reduce growth. However, respectable growth is still possible. But to us, price stability is the major concern. I wish I could tell you that this one is the last or the next one,” Medalla said.

Economists at the Bank of the Philippine Islands (BPI) said yesterday’s action was in line with the markets’ expectations

“Even with this 50bps hike, we believe the economy has enough capacity to absorb this.

GDP growth may slow down a bit because of higher interest rates, but it might be worse if inflation continues to rise,” BPI said.

BPI noted household consumption accounts for 70 percent of the economy, and inflation has a more severe impact on consumption.

“The economy managed to grow by 6.3 percent and 6.1 percent in 2018 and 2019 even if the policy rate was above 4 percent. A prolonged period of high inflation will eventually hurt consumers and businesses, which will likely affect the economy more severely compared to higher interest rates,” BPI said.

BPI said although a slowdown in August consumer prices is “a possibility due to high base effects, inflation will remain a challenge until the first half of 2023.”

“We have still yet to see the peak in inflation near 7 percent in October should global price pressures from oil, energy and food remain substantial. In this scenario, average inflation is expected to settle between 5 to 5.5 percent. Given this, the BSP may hike again by at least 25 bps in its November policy meeting,” BPI said.

The Monetary Board also continues to urge timely non-monetary government interventions to mitigate the impact of persistent supply-side pressures on commodity prices.

“We cannot overemphasize the need to use non-monetary tools. The best measure now is to loosen import restrictions. This will hopefully reduce prices,” Medalla said.

“Supply disruptions have kept food prices elevated. Refined white sugar, and can remain vulnerable to higher transport costs, trade restrictions, and weather disturbances. This, along with sustained Peso depreciation due to import expansion and hawkish Fed policy will likely compel the BSP keep up with its adjustments through 2023,” BPI added.

In a surprise move, the Monetary Board (MB) yesterday raised the key rates of the Bangko Sentral ng Pilipinas (BSP) by 75 basis points (bps) as “signs of sustained and broadening price pressures” mostly from other countries continue.

The BSP’s overnight reverse repurchase facility now stands at 3.25 percent. The interest rates on the overnight deposit and lending facilities were also raised to 2.75 percent and 3.75 percent, respectively.

Yesterday’s action came just after a back-to-back rate hike of 25 bps each last May and June as the MB begins with its exit strategy from the loose monetary policy it delivered to help shield the economy from the effects of the strict lockdown measures imposed to combat the coronavirus pandemic.

It is also historically the largest, single tightening action of the MB. The most recent time  the MB made an adjustment of this magnitude was in June 2016 when the policy was reduced by 100 bps. But it was an operational adjustment as they shifted to the current interest rate corridor framework.

The last time that the MB had an off-cycle action was in April 2020, when it decided to cut the policy rate by 50 bps to 2.75 percent in view of the pandemic.

In raising the policy interest rate anew, Felipe Medalla, BSP governor and MB chief, said they recognized that a significant further tightening of monetary policy “was warranted by signs of sustained and broadening price pressures amid the ongoing normalization of monetary policy settings” here and around the world.

“By taking urgent action, the MB aims to anchor inflation expectations further and temper mounting risks to the inflation outlook. In particular, policy action is intended to help manage spillovers from other countries that could potentially disanchor inflation expectations,” Medalla said.

The US Federal Reserve, most often used as barometer of other central banks, began tightening policy only in March, and has already raised its benchmark overnight lending rate by 1.5 percentage points.

Other central banks around the world are also in tightening mode as global inflation continues to rise at unprecedented pace, some even hitting multi-year highs.

Medalla stressed that the scheduled meeting next month will push through.

Medalla said the MB “continues to urge timely non-monetary government interventions to mitigate the impact of persistent supply-side pressures on commodity prices.”

“The BSP reassures the public of its unwavering commitment and readiness to take further necessary actions to steer inflation towards a target-consistent path over the medium term in keeping with its price stability mandate,” Medalla said.

Consumer prices continued to accelerate in June, breaching the 6-percent mark at 6.1 percent, brought about by the higher annual growth rate in the indices for food and non-alcoholic and transportation.

Average inflation for the first half of the year was at 4.4 percent.

Francisco Dakila, BSP deputy governor, said based on available data, there have been some further second round effects appearing.

“Our survey on the private sector also showed higher inflation forecasts. Partial results showed that for 2022, the mean forecast has risen to 5.4 percent from 4.9 percent. For 2023, it has risen to 4.4 percent from 3.9 percent previously. So, these are evidences of further spillovers,” Dakila said.

There are no changes to the current inflation forecasts, however.

“It would be announced on next month’s (scheduled) meeting. We would want to incorporate the latest data,” Dakila said.

By the next meeting, Dakila said they would have new information on inflation and gross domestic product (GDP) growth.

“That would help us assess if we need further action. As we have always emphasized, we remain data dependent. Therefore, the August meeting should push through,” Dakila said.

PH economy robust

Medalla said the MB noted favorable conditions arising from the strong rebound in growth thus far in the year which suggest that the “domestic economy can accommodate a further tightening of monetary policy settings.”

“We actually see the growth may be closer to the upper band of the DBCC (Development Budget Coordination Committee) forecasts. That comes on the back of the strong first quarter performance. Second quarter is very likely strong or could be stronger than the first quarter,” Dakila said.

Benjamin Diokno, Department of Finance secretary and former BSP governor, said the economy “continues to be robust to absorb the recent monetary policy rate increase given the favorable expansion of economic activity early this year.”

“The DBCC target range for the GDP growth rate (6.5 to 7.5 percent) has been set to be able to incorporate the various pace of monetary policy normalization by the BSP. The growth outlook is seen to be supported by the maintenance of loosened quarantine restrictions as well as the positive impact of structural reforms including CREATE (Corporate Recovery and Tax Incentives for Enterprises), FIST (Financial Institutions Strategic Transfer), PSA (Public Service Act), RTL (Retail Trade Liberalization) and FIA (Foreign Investment Act),” Diokno said.

“The economy was growing at that rate before the pandemic, when policy rate was at 4 percent. We estimate that the economy will be back to where it was before the pandemic by middle of this year, or by the third quarter of 2022 at the latest. The BSP simply accelerated the normalization process,” Diokno added.

Economists at the Bank of the Philippine Islands (BPI) believe the “economy has enough capacity to absorb (the rate hike).”

“GDP growth may slow down a bit because of higher interest rates, but it might be worse if inflation goes up further. It should be noted that household consumption accounts for 70 percent of the economy, and inflation has a more severe impact on consumption. The economy managed to grow by 6.3 percent and 6.1 percent in 2018 and 2019 even if the policy rate was above 4 percent. A prolonged period of high inflation will eventually hurt consumers, which will likely affect the economy more severely compared to higher interest rates,” BPI said.

Reanchor inflation 

“After months of staying dovish, the BSP whips out a jumbo 75 bps rate hike. With inflation past target and peso at multiyear weakness, BSP attempts to reanchor inflation expectations and show resolve to combat inflation,” Nicholas Mapa, ING Bank senior economist, said.

BPI, however, said the latest move from the BSP “is in line with our expectations.”

“Back in March, we started to discuss the increasing possibility of an off-cycle rate hike given the volatility of oil and the currency. We said that kicking the can further may eventually lead to a situation that could force the BSP to hike by more than 25 bps in one meeting, similar to what happened in 2018,” BPI said.

Consumer prices continued to accelerate in June, breaching the 6 percent mark, brought about by the higher annual growth rate in the indices for food and non-alcoholic beverages and transportation.

The Philippine Statistics Authority yesterday said inflation hit 6.1 percent in June, the highest recorded inflation since October 2018.

Inflation in the previous month stood at 5.4 percent and in June 2021, 3.7 percent.

Average inflation for the first half of the year was  at 4.4 percent.

“The uptrend of inflation for June 2022 was primarily brought about by the higher annual growth rate in the index for food and non-alcoholic beverages at 6 percent, from 4.9 percent in the previous month. This was followed by transport whose index grew by 17.1 percent annually, from 14.6 percent in May 2022,” Dennis Mapa, national statistician and civil registrar general, said in a statement.

The indices of alcoholic beverages and tobacco; clothing and footwear; housing, water, electricity, gas and other fuels; furnishings, household equipment and routine household maintenance; health; recreation, sport and culture; and personal care, and miscellaneous goods and services also accelerated.

However, the annual mark-up in the information and communication index decelerated to 0.5 percent.

The indices of education services, restaurants and accommodation services, and financial services retained their previous month’s inflation rates.

Mapa said  inflation for food at the national level rose further to 6.4 percent in June from 5.2 percent in May.

“The acceleration in the food inflation was primarily influenced by the higher annual growth in the meat and other parts of slaughtered land animals index at 8.1 percent. Also contributing to the uptrend in the food inflation was fruits and nuts food group which registered an inflation rate of 1.1 percent, from -2.4 percent in the previous month,” Mapa said.

Inflation in the National Capital Region (NCR) similarly increased further to 5.6 percent from 4.7 percent in the previous month. Inflation in areas outside NCR (AONCR) rose further to 6.3 percent.

All the 16 regions in AONCR registered higher inflation during the month. Cordillera Administrative Region and Central Luzon had the highest inflation rate of 7.5 percent, while the Bangsamoro Autonomous Region in Muslim Mindanao remained as the region with the lowest inflation at 3.1 percent.

‘Not peaked yet’

Economists at the Bank of the Philippine Islands (BPI) said despite the jump in June, “inflation has probably not peaked yet.”

“The headline figure may continue to go up until October assuming oil prices will stay at current levels. In this scenario, average inflation is expected to settle between 5 to 5.5 percent (whole year 2022),” BPI said.

The bank said the contribution of food to inflation will likely expand further in the coming months given the shortage of certain items in the international market amid the conflict in Ukraine and the trade restrictions being put in place by exporting countries like India and Indonesia.

“The contribution of transport to inflation will also likely expand in the coming months because of the recently approved fare hike for jeepneys. With road transport services accounting for 4.29 percent of the consumer basket, we expect a 0.2 percent increase in the upcoming inflation prints as a result of the P2 hike in jeepney fares,” BPI said.

With inflation still on the rise, BPI sees the policymaking Monetary Board to “continue hiking key rates until the end of the year.”

“Assuming the central bank will continue to hike gradually, the pressure on the peso will remain substantial since faster rate hikes in the US will make the dollar more attractive.

The depreciation of the peso will likely translate to more inflation especially now that the economy is becoming more reliant on imported goods. A higher inflation print in the coming months may lead to a situation that could force the BSP to do bigger hikes, similar to what happened in 2018. Hiking the policy rate by 50 bps now rather than later may help in mitigating the risk of bigger hikes in the future that could cause more volatility in the markets,” BPI said.

Security Bank  said inflation’s June uptick is enough of a justification for a 50 basis points (bps) rate hike by August.

“In line with our expectations, there is additional pressure for the central bank to frontload its rate hike with inflation gaining momentum. We now expect the BSP to hike by 50 bps this August 18, 2022, as inflation pressures mount,” it said.

“We estimate inflation to average 5.1 percent this year,” it added.

‘Concerning, but not surprising’

Aris Dacanay, HSBC economist for Asean, said inflation breaching the 6-percent mark is concerning but not surprising.

“The major contributors to headline inflation are still a reflection of high oil and food prices abroad… All in all, inflation remains ‘traceable’: we can still track where price pressures are coming from,” Dacanay said. He, however, stressed  the figures also suggest inflationary expectations, albeit possibly increasing, remain manageable so far.

“Spillover effects from higher transport and food inflation haven’t been as pronounced. Half of the core basket had a slight increase in inflation from May to June, but only 1 of 10 of the core items had inflation rates above the BSP upper bound target of 4 percent. The rest were still well below it,” he said.

“Nonetheless, inflation may increase even further in the next month or so. Although oil prices have started to moderate, the sharp depreciation of the peso during the latter half of June will likely put upward pressure on domestic prices throughout July. Transport CPI will also likely increase as authorities raised jeepney fares. Both June and July fare hikes will likely lead to a hefty increase of overall inflation by 0.6-0.7ppt,” Dacanay added.

“There’s a lot of time between today and the Monetary Board meeting on the 18th of August to gather and scrutinize more data. Apart from the daily FX data, statistical authorities by then would have published the GDP data for the second quarter of 2022 as well as the trade statistics for May and June. The BSP will have more data to see whether the risk of derailing growth is minimal or not. An upside surprise to growth, similar to the one in the first quarter, will possibly increase the risk of the BSP changing gears and hiking more aggressively,” he  said.

Non-monetary measures needed

Michael Ricafort, chief economist of Rizal Commercial Banking Corp., said non-monetary measures and not necessarily by outright policy rate hikes may be more effective to address supply-side pressures.

“Inflation in recent months largely due to supply-side factors, not due to higher demand.

So any local policy rate hike may not be necessarily effective in addressing these supply-side inflationary pressures, largely due to external/exogenous factors such as higher global oil/energy and other commodity prices largely due to Russia’s invasion/war with Ukraine since February 24; all of which are beyond the country’s reasonable control. Thus, these supply-side inflationary pressures could be partly addressed by non-monetary measures and not necessarily by outright policy rate hikes,” Ricafort said.

Ricafort cited increased subsidies for the transportation and agriculture sector could have somewhat mitigated risks of passing on higher oil prices.

He added increased conservation measures to reduce reliance on imported oil/energy would also help mitigate the adverse effects on inflation and on economic recovery prospects.