July inflation hits six-month high

Wednesday, 08 August 2012 21:58 Jun Vallecera and Max V. De Leon | Reporters

FOOD and energy prices kicked higher in July, far more than most analysts had expected and helped lift inflation averaging 3.2 percent during the month.

Analysts at Security Bank, for instance, had anticipated the July inflation to average no more than 3.1 percent as they plotted its path to rise by only 0.3 percent also during the month.

The previous June, inflation rose by 0.5 percent from a month earlier.

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At the Bangko Sentral ng Pilipinas, BSP Governor Amando M. Tetangco Jr. said the July inflation was well within the range forecast for the month.

“While there was an uptick from the previous month, the rate remains close to the lower end of the target range for 2012,” Tetangco added.

Inflation forecast for the month ranged from 2.6 percent up to 3.5 percent.

Tetangco said the uptick in inflation “bears watching” if only to discover both the “duration and extent of the up move.”

According to the BSP governor, the BSP remains convinced that inflation would remain manageable over the next few months and saw no reason to change the inflation forecast for the year averaging 3.1 percent.

He earlier said inflation, or the rate of change in prices, was likely to moderate over the next 24 months when it should average between 4 percent and 5 percent.

This compares with original forecast of 3 percent to 5 percent.

The 3.2-percent inflation in July was higher compared to 2.8 percent in Jun, but lower from the year-ago inflation rate of 4.9 percent, the National Statistics Office (NSO) reported.

“This was due to higher annual increments registered in all the commodity groups, except those in clothing and footwear, health, transport and education indices,” NSO said.

This was the highest rate of increase in the average price of a standard basket of goods and services being consumed by a typical Filipino family since January, when headline inflation hit 4 percent. But the NSO said that if the more volatile food and energy items were excluded, July’s inflation would be 4.1 percent.

This core inflation (minus food and energy items) of 4.1 percent in July is higher than June’s 3.7 percent.

Headline inflation reflects the changes in the cost of living based on the movements of the prices of items in the basket of commodities and services consumed by the typical Filipino household. On the other hand, core inflation measures the change in average consumer prices excluding certain items in the consumer price index  with volatile price movements.

The statistics office said headline inflation in the National Capital Region (NCR or Metro Manila) jumped to 3.1 percent in July from 2.2 percent in June. Except in clothing and footwear, health, transport, communication and education indices, all the commodity groups posted higher annual gains.

“Annual inflation in areas outside NCR grew 3.2 percent in July from 3.0 percent in June. It resulted from higher annual upticks in the indices of food and non-alcoholic beverages; housing, water, electricity, gas and other fuels; furnishing, household equipment and routine maintenance of the house; and recreation and culture,” the office added.

On a month-on-month basis, the agency said inflation decelerated to 0.3 percent in July from 0.5 percent in June. “Price increases were observed in food items like rice, meat, fish, vegetables and sugar. However, this was tempered by the downward price adjustments in cooking oil, [select] condiments and seasonings, gasoline and diesel.”

The “food alone index” increased by only 2.2 percent on an annual basis in July, which prevented a higher adjustment in the inflation rate.

“The annual growth in the rice index moved up 0.5 percent in July from -0.3 percent in June; corn index, 5.6 percent from 5.5 percent; meat index, 1.0 percent from 0.8 percent; fish index, 6.7 percent from 6.6 percent; milk, cheese and egg index, 3.4 percent from 3.3 percent; and fruits index, 7.5 percent from 7.2 percent. A slower annual hike, however, was observed in food products not elsewhere classified index at 1.4 percent from 2.4 percent,” the statistics office said.

The annual movements in the other food groups were either negative or remained at their previous month’s rate, with the index for vegetables registering a zero-percent annual rate from June’s 1.2 percent.

Meanwhile, the NSO reported that the average prices of goods released by the manufacturing sector in June fell by 2 percent. This is based on preliminary results of the monthly Producer Price Survey.

“The downtrend was influenced by the double-digit decreases posted by three major sectors, namely, furniture and fixtures [-14.8 percent]; basic metals [-14.1 percent] and non-metallic mineral products [-13.5 percent]. On the other hand, four major sectors posted increases, led by rubber and plastic products [6.0 percent], while publishing and printing showed a flat growth,” the office said.
The NSO generates the Producer Price Index through results of the Producers Price Survey conducted nationwide. The survey gathers monthly actual producer prices of select products included in the market basket.

On top of moderating prices, interest rates were also seen moderating during the period in keeping with global trend in which most central banks adopt a more accommodating stance to optimize growth.

“Over the next two to three years, we see inflation settling at between 3 and 4 percent. We don’t expect a pickup in the inflation rate, and that’s why we are also projecting a low-interest rate environment,” according to Tetangco.

Tetangco effectively said that monetary policy should remain price-friendly for businesses and home buyers over the next 18 to 24 months when the impact of the BSP’s more recent policy actions, such as the 25 basis-point reduction on July 26, would begin to be felt in the market.