Prices of major commodities, specifically transport and utilities, exhibited a faster pace of increase in July and brought inflation to 2.7 percent, from 2.5 percent in June.
This brings the year-to-date inflation to 2.5 percent, closer to the low-end of the government’s full-year target range of between 2 and 4 percent.
The Philippine Statistics Authority said the acceleration in July’s inflation number was “mainly caused by the jump in the inflation of the transport index at 6.3 percent during the month, from 2.4 percent in June 2020.”
Also contributing to the uptick were the indices of alcoholic beverages and tobacco at 19.3 percent; housing, water, electricity, gas and other fuels at 0.8 percent; and restaurant and miscellaneous goods and services at 2.5 percent.
Inflation for the food index at the national level continued to decelerate as it posted 2.5 percent in July 2020, from 2.7 percent in the previous month.
The health index remained at 2.8 percent while the other commodity groups exhibited slower annual increases during the month.
Benjamin Diokno, Bangko Sentral ng Pilipinas (BSP) governor, said July inflation “was within the BSP’s forecast range of 2.2-3.0 percent.”
“(The) inflation outturn is consistent with the BSP’s prevailing assessment that inflation is expected to remain benign over the policy horizon due largely to the potential adverse impact of Covid-19 on the domestic and global economic prospects,” Diokno said.
He stressed that forecasts indicate that inflation is likely to settle close to the mid-point of the government’s target range.
Karl Chua, National Economic and Development Authority acting secretary, said the national and local governments “need to strengthen risk management systems to ensure an unhampered and sufficient supply and delivery of essential commodities that will support a stable inflation for the country.”
“Although we expect that the overall consumer prices will remain benign until 2021, we recognize that the upside risks to the inflation outlook still remain,” Chua said.
“We need to remain vigilant and ensure that strategies are well-placed to ensure stable supply and delivery of essential commodities in all parts of the country,” he added.
With Metro Manila and nearby provinces reverting to modified enhanced community quarantine (MECQ), Chua also highlighted the need to prevent a recurrence of supply chain disruptions, especially for food supplies and basic necessities.
“We need to ensure a smooth functioning of checkpoints, continued implementation of food resiliency protocols, extended provision of mobile markets, and constant encouragement on the use of digital marketing platforms, especially in the areas where MECQ was reimposed,” the Cabinet official said.
Diokno said the Monetary Board will consider the latest inflation outlook, along with the release today of the second quarter gross domestic product (GDP) data, at this month’s monetary policy stance meeting.
“The BSP remains ready to deploy all available measures in its toolkit in fulfillment of its policy mandate as it continues to assess the impact of the global health crisis on the domestic economy,” Diokno said.
He added the contraction in domestic economic activity is “seen to have bottomed out in the second quarter.”
“For the rest of year, output is expected to decline at a slower pace as firms and households gradually adjust to post-pandemic conditions. GDP growth is expected to recover in 2021 as government policy support measures fully gain traction,” Diokno said.
The Monetary Board in June reduced by another 50 basis points (bps) the key rates of the BSP, a surprise move but is expected to further boost economic activity slowed down by the enforcement of various lockdown measures around the country the last three months.
This is the third 50 bps reduction of the Monetary Board since ECQ was imposed last March 17 in major cities in the country to prevent the spread of coronavirus disease or COVID-19.
Central banks reduce interest rates to encourage borrowing and investing, thereby possibly stimulating economic growth. Although this move may hasten inflation, the Monetary Board has room to move as prices of major commodities are expected to remain at comfortable levels.
Rates are raised, meanwhile, when there is too much growth, which is not the case now. Global economic activity, including that of the Philippines, is expected to slow down this year as almost all countries are affected by the virus.
Prior to June’s move, the Monetary Board has also reduced the reserve requirement ratios of universal and commercial banks as well as non-bank financial institutions with quasi-banking functions by 200 bps; suspended the term deposit facility auctions for certain tenors; reduced the term spread on the peso rediscounting loans relative to the overnight lending rate to zero; and relaxed various regulations pertaining to compliance reporting, calculation of penalties on required reserves, and single borrower limits.
These moves are all meant to help the economy combat the negative effects of COVID-19.