Inflation resumes downtrend, eases to 2.7% in June

After a slight uptick in May, inflation resumed a downtrend in June, the Philippine Statistics Authority (PSA) reported on Friday.

The pace of prices of goods and services decelerated to 2.7% in June, slower than the 3.2% in May, the PSA said.

It is within the Bangko Sentral ng Pilipinas’ (BSP) forecast between 2.2% and 3.0%, and compares with 5.2% recorded in June 2018.

“This is the lowest inflation recorded since September 2017,” PSA National Statistician Claire Dennis Mapa said in a press conference in Quezon City. Inflation clocked in at 3.0% during the said period.

In January to June, inflation registered at 3.4%—also within the government’s target of 2% to 4% for 2019.

“The main driver in the downtrend of inflation in June 2019 was food and non-alcoholic beverages,” Mapa said.

The PSA chief noted the following food groups primarily contributed to slower inflation last month:

• Rice: -1.7% from -0.7% in May
• Corn: -4.0% from -2.8%
• Meat: 3.3% from 3.4%
• Fish: 3.8% from 4.2%
• Vegetables: 9.5% from 12.5%
• Sugar, jam, honey, chocolate, and confectionary: 2.2% from 5.4%

Mapa attributed the decline in rice and other food prices to the Rice Tariffication law, which flooded the market with the imported commodity.

In a separate statement, the National Economic and Development Authority (NEDA) said the implementation of the Rice Tariffication Law allowed the entry of a significant tonnage of imported rice that helped bring rice prices down.

Since the law's passage, private traders have applied for the sanitary and phytosanitary import clearances of 1.26 million metric tons (MT) of rice imports from the Bureau of Plant and Industry, according to the NEDA.

Of these, 576, 000 MT had arrived in the Philippines as of June 7, 2019.

“Transport also contributed to the downtrend of the June 2019 inflation,” Mapa said.

Petroleum and fuel for personal transport equipment decelerated to -4.1% from 4.2%. Domestic air fare also slowed to -9.7% from 8.0%, while ferry or ship fare declined to 8.2% from 16.6%.

Rizal Commercial Banking Corp. chief economist Michael Ricafort said the June inflation reflected lower food prices, “especially rice after the Rice Tariffication law that reduced rice prices— which accounts for about 10% of the inflation index—by about P5 to P10 per kilogram from a year ago.”

“Stronger peso, among the best in 17 months, also reduced import prices. Oil prices especially in early June 2019 remained relatively lower,” Ricafort noted.

Higher base effects, as inflation was at a peak last year, also “mathematically” led to slower year-on-year inflation, according to the economist.

Inflation in the National Capital Region slowed to 3.0% last month from 3.4% in May and 5.8% in June 2018.

“The same trend was observed … in Areas Outside NCR as it eased to 2.6% in June 2019. Inflation in May 2019 was 3.1% and in June 2108, 5.1%,” Mapa said.

Month-on-month, inflation also slowed to 0.2% last month from 0.3% in May as the food and non-alcoholic beverages index registered zero growth from 0.4% in the prior month.

“Non-monetary measures since late 2018 to increase local supply of various food items such as rice, fish, sugar, etc.—to increase local food supply to lower prices and to better manage overall inflation—may at least help stabilize or even further ease inflation in the coming months,” Ricafort said.

Upside risk

The NEDA said the government would continue putting in place preemptive measures to mitigate the impact of weather-related shocks and uncertainties in the international oil market.

"The government will also implement measures to prevent the spread of the African swine fever in the country while moderating its effects on inflation," the economic planning agency explained.

"We note that the prevalence of adverse weather conditions in the country remains an upside risk to inflation, especially with the start of the rainy season."

The NEDA noted that the country needed to prepare for the possible onslaught of nine to 13 typhoons in the coming months, as well as the above-normal amount of rainfall brought by the southwest monsoon or habagat.

"On the other hand, the weak El Niño phenomenon has been forecast to persist until August 2019, with a chance to continue until the first quarter of 2020," the NEDA projected.

"We reiterate our call to beef up production support and farm recovery programs in areas affected by El Niño. We also pitch for an assessment on the vulnerability and sustainability of farm areas to ensure that farming activities are adaptive to the environment and resilient to weather disturbances." —KBK/VDS/DVM, GMA News