June inflation eases

PHILIPPINES - In Brief 05 Jul 2023 by Romeo Bernardo

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Highlights from today’s inflation report are as follows: The headline inflation rate continued to trend down to 5.4% in June from 6.1% the previous month and a high of 8.7% in January. Compared with the February to May months when month-on-month inflation rates were at zero or negative, June month-on-month inflation went up 0.2%, due mainly to higher food prices. Adjusting for seasonality, prices increased by 0.1% sequentially, lower than May’s 0.3%. Core inflation also eased but more gradually. From a high of 8% in March, it slid to 7.4% by June, reflecting an average 0.3% per month increase over the period. The June inflation outturn is below the median analysts’ forecast (5.5%) and at the low end of the BSP’s predicted range (5.3%-6.1%). Our view: Based on its current path, the headline inflation rate should fall back to the BSP’s 3-4% target by Q4. Despite the downtrend, the full-year average is still expected to settle above 5% given that inflation averaged 7.2% in 1H. Risks are still tilted to the upside with ongoing wage and transport fare adjustments. Food supply issues remain the major concern especially with the predicted El Nino weather disturbance. The next Monetary Board meeting is scheduled on August 17. At this time, we expect the BSP to still keep rates on hold.