June inflation softens with cheaper food, oil prices

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Metro Manila (CNN Philippines, July 5) — Inflation slowed in June, clocking in at 2.7 percent thanks to lower food and fuel prices, the Philippine Statistics Authority (PSA) said.

Price increases for basic goods softened to its lowest in nearly two years, settling below the 3.2 percent pace logged in May and the 5.2 percent in June 2018. This also falls within the 2.2-3 percent forecast given by the Bangko Sentral ng Pilipinas (BSP) last week.

The PSA said lower prices of food and non-alcoholic drinks mainly drove the headline print down, coupled with cheaper rates for housing, water, electricity, gas, and other fuels.

"The negative inflation rate for rice can be explained by the rice tariffication," National Statistician Claire Dennis Mapa said during Friday's press briefing.

Starting March 5, private firms and traders can now2 directly import rice without securing permits from the National Food Authority. The Department of Finance said this has driven rice prices lower by as much as ₱10 per kilogram and raised ₱5.9 billion in fresh revenues so far.

Food inflation settled at 2.6 percent for the month, improving from May's 3.2 percent. Apart from rice, the cost of vegetables, fish, and meat also relented in June.

Other major movers were alcoholic drinks and tobacco, home furnishings and maintenance, transport, and communication costs, the PSA said. School expenses even declined by 4.5 percent compared to June 2018, data showed.

By location, prices of goods rose faster in Metro Manila at 3 percent, while the rate in the provinces stood at 2.6 percent. The Mimaropa region saw the fastest price spikes at 5.2 percent.

June's pace is the softest since August 2017, according to PSA data. It also marks the return to the inflation downtrend, which was interrupted by the higher-than-expected May rate.

Inflation has averaged 3.4 percent in the first half of 2019, well within the 2-4 percent target range set by the BSP. For the entire year, the central bank sees inflation at 2.7 percent.

BSP officials previously said that May's uptick was temporary, as they see price expectations to further ease in the coming months. BSP Governor Benjamin Diokno said monetary authorities will "keep close watch" over latest economic trends as they assess policy rates.

A bank analyst said the June print sets the stage for more interest rate cuts in the coming months.

"ING is penciling in a policy rate cut by the BSP at its August meeting, should inflation continue to show it will remain within target; and second quarter growth is projected to be soft," ING Bank Senior Economist Nicholas Antonio Mapa said in a market commentary.

The central bank started unwinding last year's rate hikes with a 25-basis-point rate cut in May, with Diokno saying there's still space for further reductions.