DOF sees inflation easing into range by Sept
THE fourth consecutive month of inflation slowdown in May “gives” confidence that the rate would be within the government’s target range of two to four percent by September, the Department of Finance (DOF) said.
“The new inflation number and the declining trend give confidence that inflation would be within the target range of 2.0 percent to 4.0 percent by September this year,” Finance Secretary Benjamin E. Diokno was quoted in a statement as saying.
The Philippine Statistics Authority (PSA) reported last Tuesday that the country’s inflation in May was at 6.1 percent, slower than the 6.6 percent in April.
Diokno noted that the main sources of the decline in headline inflation were the lower contribution of transport, food and nonalcoholic beverages and housing, water, electricity, gas and other fuels to overall inflation.
“This is a positive development. The economic team expects that our country’s inflation rate shall continue to decline. Our kababayans can be assured that we will remain steadfast in implementing strategies to keep the inflation rate well within target,” Budget Secretary Amenah F. Pangandaman was quoted in a separate statement as saying.
“This goes to show that the economic strategies of the administration of President Bongbong Marcos is on the right track. Our whole-ofgovernment approach is working,” Pangandaman added.
Core inflation
THE Finance Secretary also pointed out that core inflation, which excludes selected volatile food and energy items, has shown signs of slowing down as it slightly declined to 7.7 percent from 7.9 percent in April. Nonetheless, he noted that it was still higher than the 2.8 percent core inflation recorded in May of last year.
“It is also encouraging to see that inflation has gone down in all regions. The government is committed to identifying bottlenecks in the country’s supply chain and improving the distribution of commodities down to the localities,” Diokno said.
Nonetheless, Diokno said year-todate headline inflation is at 7.5 percent, still higher than the Development Budget Coordination Committee (DBCC) assumption of 5.0 percent to 7 percent for full year 2023.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort echoed Diokno’s view that the easing of inflation was due to softening food prices on the back of improved domestic harvest as well as declining oil prices.
Ricafort added the easing trend is expected primarily due to higher base effects. Nonetheless, he noted that easing inflation would support faster economic growth of the country.
“The expected easing trend in year-on-year inflation for the coming months to about 5-percent levels in June 2023; 4-percent levels from July-september 2023 and 3-percent levels from October-december 2023; and, 2-percent levels or even lower in [first quarter of] 2024,” Ricafort said.
Closer monitoring
HOWEVER, the Bank of the Philippine Islands (BPI) said while “the overall cost of food continues to rise at a slower pace with the improvement in supply, it still accounts for a huge portion of the headline figure.”
“Items like corn, meat, fish and oils posted a lower inflation print.
On the other hand, the price of rice and vegetables rose at a faster pace,” a statement issued by BPI last Tuesday read. “Rice is a commodity that requires closer monitoring in the coming months, as it could become a significant driver of inflation.”
The lender noted that news reports indicate an anticipated global shortage of rice this year, primarily attributed to reduced production in China and Pakistan.
“As the country becomes more reliant on imported rice, the local supply may be at risk and this could lead to higher prices,” BPI said.
With rice accounting for almost 9 percent of the inflation basket, the impact of this commodity is significant, the lender added.
BPI said that another upside risk is the oil production cut of the Organization of the Petroleum Exporting Countries, “which could limit the disinflationary impact of oil.”