Jul 3, 2014

Philippines - Philippine June inflation seen to hit 30-month high

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Consumer prices in the Philippines likely rose at a faster rate to reach another 30-month high in June, with some market players warning of inflation pressures brewing as a result of dangerous “second-round” effects.

Analysts interviewed by the Inquirer this week were unanimous in saying consumer price inflation for June likely rose from the 4.5-per cent rate recorded in May.

“There could be some upside surprises. The way prices have moved in the past month has been significant,” ING Bank economist Joey Cuyegkeng said.

“Behind all of these things, it’s demand already. I don’t have real evidence but I think there’s some demand pressures,” he said.

The Bangko Sentral ng Pilipinas (BSP) expects average inflation for the year to be at 4.4 per cent, higher than last year’s 3 per cent and near the high end of the official target range of 3 to 5 per cent.

All nine economists asked by the Inquirer this week said inflation in June likely rose to at least 4.6 per cent. The BSP has a forecast of 4.1 to 5 per cent for the month. Official inflation data will be released this Friday.

Central bank officials earlier said that higher consumer prices have so far been driven by supply-side pressures, notably poor harvests that have made commodities like rice and sugar more expensive. Geopolitical risks in the Middle East have also resulted in higher fuel prices.

According to Bank of the Philippine Islands (BPI), so-called “second round” effects might have started in June. The price of fuel, transport fares and tuition went up in June, the bank said. “When stuff like that happens, other traders have an excuse to push their own prices higher,” the bank said.

Excess liquidity in the economy has also put more money in people’s pockets. “It can cause an upward spiral that happens very quickly,” BPI said.

Data released earlier this week showed the amount of cash circulating in the economy rose by 28 per cent in May. Although this was slower than the 32-per cent expansion posted the month before, it still remained above the 15- to 18-per cent range the BSP considers normal.

Growth in bank lending was also up, accelerating to 21 per cent in May from 20 per cent in April.

Paolo G. Montecillo

Business & Investment Opportunities 

Saigon Business Corporation Pte Ltd (SBC) is incorporated in Singapore since 1994. 

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