Philippines’ Inflation Rate Drops to 4.7 Percent in July
The country’s inflation rate decreased to 4.7 percent in July, marking its slowest pace in 15 months, according to the Philippine Statistics Authority. This is a decline from the 4.9 percent recorded in April 2022. National Statistician Dennis Mapa attributed the continued slowdown in headline inflation to lower price increases in electricity, home rentals, liquefied petroleum gas, meat, fish, seafood, sugar, confectionery, desserts, as well as road transport and airfares.
This marks the sixth consecutive month of decelerating inflation. The July figure fell below the median estimate of private-sector analysts, which was 4.9 percent, but within the forecast range of the Bangko Sentral ng Pilipinas (BSP) for the month, which was 4.1 percent to 4.9 percent.
Finance Secretary Benjamin Diokno expressed optimism, stating, “We are ‘over the hump’.” However, the average inflation rate since January remains high at 6.8 percent, surpassing the BSP’s target full-year average range of 2 percent to 4 percent.
The BSP expects inflation to ease further towards the end of the year and possibly drop below the lower-end of the target range in early 2024. Despite the improvement in inflation, high-interest rates still pose a challenge due to factors that hinder sufficient production of goods, particularly food.
BSP Governor Eli Remolona Jr. stated that the central bank is not yet ready to lower its benchmark policy rate, which currently stands at 6.25 percent. He emphasized the presence of supply-side factors and the need to monitor inflation data, indicating a possible rate hike during the next Monetary Board meeting on August 17.
While inflation rates have been on a downward trend, upside risks to inflation expectations remain. Remolona cited the potential impact of El Niño on food production, not only in the Philippines but also in countries that serve as sources of food imports.
The BSP maintained its stance that the July results align with their overall assessment that inflation will gradually return to the target range by the fourth quarter, barring any additional supply shocks. However, upside risks also stem from potential transport fare increases, higher-than-expected minimum wage adjustments in certain regions, and potential knock-on effects of elevated toll rates on prices of key agricultural items.
