Inflation slackens to 2.8% in June » Manila Bulletin Business

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By Chino S. Leyco

The increase in consumer prices slowed down below the three percent level in June as the National Economic and Development Authority (NEDA) expects the moderate uptick registered in the first six months to continue for the rest of the year.

The Philippine Statistics Authority (PSA) reported yesterday that inflation weakened to 2.8 percent in June — the slowest increase in five months — from 3.1 percent in the previous month, but higher than the 1.9 percent rate registered a year before.

Actual inflation in May is lower than market expectations of three percent, and within the government’s target of 2.0 percent to 4.0 percent. Year-to-date, average inflation settled at 3.1 percent.

BSP Governor Nestor A. Espenilla Jr. said the lower-than-expected inflation was welcome news but not unexpected.

“The further deceleration in inflation in June is in line with our forecast. The lower inflation is partly driven by lower fuel prices and power rates,” Espenilla said.

“This validation gives us the space to carefully consider our policy options with respect to fine tuning deployment of our monetary instruments to further the market-based development of the domestic financial market,” he added.

Core inflation, which excludes select volatile food and energy prices, also eased to 2.6 percent in June from 2.9 percent, reflecting the general price stability across goods and services.

Also, slower price adjustments in both food and non-food commodities contributed to the easing of inflation during the month.

For food and non-alcoholic beverages, inflation slowed to 3.5 percent in June from 3.8 percent the previous month.

Likewise, non-food inflation slowed to 2 percent in June 2017 from 2.5 percent in May.

This follows the significantly slower year-on-year increase in domestic petrol prices during the period, particularly unleaded gasoline (5.1 percent from 9.9 percent), diesel (5.3 percent from 13.6 percent), and kerosene (3.0 percent from 9.6 percent).

NEDA Officer-in-Charge (OIC) and Undersecretary for Policy and Planning Rosemarie Edillon said that keeping inflation stable strengthens prospects of stronger domestic economic activity in the near-term.

“The significant decline in the probability of extreme weather disturbances due to El Niño and La Niña until the end of 2017 bodes well for agricultural production and commodity prices moving forward,” Edillon said.

She added however that government should take advantage of good weather conditions to accelerate the implementation of climate change adaptation measures.

“Among the crucial ones are investing in infrastructure like catchment basins, advance atmospheric moisture extraction, and promoting water-saving technology.

Rehabilitation of damaged irrigation systems and periodic maintenance will also ensure disaster and climate resiliency of the agriculture sector,” she said.

Despite having stable inflation levels, Edillon said possible risks still have to be considered.

“On the external front, domestic prices may be affected as global financial market conditions adjust in response to the faster monetary policy normalization in the United States,” Edillon said.

She added that, domestically, the transitory impact of the proposed Comprehensive Tax Reform Program (CTRP) could push up inflation once implemented.

“We find it critical to have social safety nets to mitigate the short-run effects of the tax reform program,” Edillon said.

“Nevertheless, the government needs to communicate well to the public the CTRP’s benefits especially in terms of productivity improvements which, in effect, will eventually result in lower inflation,” she added.

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