Aug. inflation may hit 5.9% – forecasters

Inflation rate is seen to hit a peak of 5.9 percent in August before it shrinks to 5.2 percent in September as the supplyside effects decelerate, according to analysts from Metrobank unit First Metro Investments Corp. (FMIC).

In its latest “Market Call” report, FMIC and research partner the University of Asia and the Pacific (UA&P) said inflation will be higher than 5.7 percent in July but after August’s peak, they predict it to sharply drop in September and down to five percent by October this year.

“We still believe that inflation will continue to lodge above the BSP’s target (of two-four percent) but will start to taper off once supply side factors such as price upticks in rice and crude oil, start to stabilize in the third quarter,” FMIC-UA&P said. The report said August’s headline inflation will rise to 5.9 percent as prices were affected by delivery interruptions after the flooding from the August 11 heavy rains which lasted for days. “The saving factor in the third quarter would be normalizing food prices due to September rice harvests and larger imports and downward trending crude oil prices to well below $70/barrel,” according to the report. “Electricity rates should also go down as hydro-power plants go full blast during the rainy season.”

They think the exchange rate will persist at current range of 153:$1 and will weaken further to near 154 – or about 153.76 – by October. The strengthening US economy will continue to encourge the withdrawals of funds to place in the higher US interest rates’ investment instruments.