Angelo Taningco
Economist, Treasury Group

Inflationary pressures have weakened further in June as both the headline and core Consumer Price Index (CPI) inflation rates fell by 0.3 percentage points from May to level off at 2.8% year-on-year (yoy) and 2.6% yoy, respectively, according to the Philippine Statistics Authority’s (PSA) latest inflation report released on 5 July. This is the second-consecutive month that consumer price inflation moved downward.

June’s headline CPI inflation rate, which is slightly below our 2.9% yoy forecast and less than the market consensus forecast of 3.0% yoy, was lower than May’s due to slower yoy price increases in seven out of eleven commodity groups in the CPI, led by food and non-alcoholic beverages; housing and utilities; and transport. More specifically, reductions in electricity rates and fuel prices in June were instrumental in dampening headline inflation.

By area, the drop in inflation was evident in both the National Capital Region (NCR) and Areas Outside NCR (AONCR), the former recording inflation of 3.1% yoy in June versus 3.7% yoy in May and the latter at 2.7% yoy in June compared to 3.0% yoy in May. Note though that the June CPI did not include Lanao del Sur due to Marawi City’s peace and order problem, which hindered the conduct of a price survey in the province. On a year-to-date basis, headline and core CPI inflation rates averaged 3.1% yoy and 2.8% yoy, respectively, over the first half of the year. On a month-on-month (mom) basis, the CPI inched up 0.1% in June after posting flat growth in May.

Overall, the inflation environment continues to be manageable, with the inflation outlook more likely to be the same as the latest headline and core CPI inflation rates stay within the government’s inflation target range of 2.0%−4.0%. Meanwhile, we think inflationary pressures may gain traction in the upcoming months especially if global oil prices will continue to move upward and if there will be adverse weather events that would disrupt domestic food supply. With this, we maintain our full-year 2017 headline CPI inflation forecast of 3.3% yoy.

Figure: Headline and Core Inflation
Jan. 2015 – June 2017
(yoy %)

 
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