Philippines’ headline inflation accelerates in June on rise in food prices

The Philippines’ annual headline inflation continued to accelerate in June, consistent with consensus expectation. The annual headline inflation quickened to 1.9 percent, the most rapid pace in more than one year, helped by higher annual rise in food and non-alcoholic beverages index, fuel and school fees, according to Philippine Statistics Authority.

Meanwhile, core inflation, excluding selected food and energy items, also accelerated to 1.9 percent in June. However, in spite of the inflation accelerating, the 12-month moving average at 1.1 percent year-on-year continues to be below the central bank’s inflation target of 2 percent-4 percent. Utilities inflation contracted in June, but the contraction was countered by the consistent rises in food prices.

Philippine’s agricultural sector continues to be the weak link to the non-inflationary. The increasing prices of food items produced locally are hinting that additional contraction in the agricultural sector is in the offing in Q2 GDP growth, added ANZ.

Food inflation is accelerating with the help of double-digit growth in the vegetable sub-index. The huge stockpile of imported rice has kept the prices of rice under control, overshadowing the risks on the upside to food items manufactured domestically, noted ANZ in a research report. As food accounts for 39 percent of the CPI basket, the persistent increase in food inflation is expected to take the center stage again as oil prices gain momentum.

There is not much risk of the inflation exceeding the central bank’s target range this year and in 2017, according to ANZ. Even if the Philippine central bank’s target is the annual average of headline inflation, the Bangko Sentral ng Pilipinas is likely to keep its rate unchanged throughout 2016. The central bank is now expected to tighten the policy in H1 2017 due to the heightened possibility of postponement in further normalization of US Fed’s interest rate, said ANZ.