But on Friday, there was no chest thumping among the government’s economic managers despite being proven right that the increase in consumer prices last month would be more muted after being on the rise since the start of the year.
The reason? Ominously lurking just under the headline inflation rate of 3.7% was the food inflation number which rose to 6.5% last month from 6.1% in the previous month.This is important because food has always been the largest component of the theoretical basket of goods and services used by the Philippine Statistics Authority (PSA) to measure the monthly inflation rate.
Food and non-alcoholic beverages account for 39% of the CPI while housing an utility bills, which declined substantially in June, is only a distant second with a 22% share.In most cases since 2017 – when the inflation rate became problematic for the Philippines once more, after a decade of being widely described as “benign" – economic managers seemed more eager to pronounce that consumer prices were on their way back to normalcy… only to see their optimism evaporate once the CPI resumed its uptrend.
Market optimistic
In general, market watchers sounded more sanguine than official sources this time around.
Bank of the Philippine Islands lead economist Emilio Neri Jr. told InsiderPH he believes June's numbers are the start of a more lasting downtrend that would bring the CPI down to almost 3% by September.
As a result, he said in a post on X that an interest rate cut by the central bank is now “practically baked in" and that the pass-through inflationary effects of a weaker currency that a rate cut may prompt is “unlikely to be a major concern for monetary authorities for at least six months.”
AP Securities research head Alfred Benjamin Garcia also expressed optimism that June's inflation number is the start of a lasting downtrend.
“I'm confident July will be even lower and we'll have a lower base starting August,” he said. “Rice prices will start going down because El Niño is over and harvest season is right round the corner.”
“Unless we experience a major typhoon, I think we're good for the rest of the year, at least on food inflation,” he added.Inflationary risks
BPI’s Neri cautioned, however, that there are still elements in play that could change the prognosis for inflation.In particular, he noted that the second half of next year bears watching if Donald Trump wins the US presidency later this year.
“If Trump wins, that will be inflationary because of protectionism,” he said, referring to the protectionist policies espoused by Trump during his presidency.
Reyes Tacandong & Co. senior adviser Jonathan Ravelas – who was one of the most bearish among economists and market watchers about June prices – also cautioned against prematurely declaring that the inflation dragon had been slain.It “could be" the start of a lasting downtrend, he said, save for one important element, pointing to the order last month of the Energy Regulatory Commission for Meralco to stagger over four months the recovery of power generation costs.
This order resulted in lower electricity bills for clients of the country's largest power retailer.
“That could have affected inflation readings,” Ravelas said, pointing to the key contributor to the lower June inflation. “It could likely just be a delay [in higher power prices],” he said. “One data point is not an assurance of a downtrend; two points or more [are needed] to ensure its on a downward path.”
Battle won, but war goes on
On Friday, official statements released by the PSA, the Bangko Sentral ng Pilipinas, and the Department of Finance all welcomed the lower June price numbers with a muted tone.
Emphasis was given, instead, to the government's efforts to contain problematic food prices, with all agencies banking heavily on President Marcos' order to lower import tariffs on rice to rein in inflation further.
They know they have inflation on the run. But they also know from experience that the war hasn't been won yet.
Senior Reporter
