BSP sees July inflation reaching 6.4%

The lower oil prices, reduction in electricity rates in Meralco-serviced areas, and lower pork prices are likely to temper the price pressures partly

July 31, 2022

The Bangko Sentral ng Pilipinas (BSP) has projected a “tempered” 5.6 percent up to 6.4 percent inflation in July with nearly three weeks of successive oil price rollbacks and easing of power rates by dominant player Manila Electric Company (Meralco).

“Inflation for the month was driven by the continued increase in food prices, further transport fare hikes, and peso depreciation,” BSP Governor Felipe Medalla said.

He said the lower oil prices, reduction in electricity rates in Meralco-serviced areas, and lower pork prices are likely to temper the price pressures partly.

“Looking ahead, the BSP will continue to monitor closely emerging price developments to enable timely intervention to arrest emergence of further second-round effects, consistent with BSP’s mandate of price and financial stability,” Medalla added.

Earlier, Medalla signaled that the BSP would continue its monetary policy tightening cycle to keep inflation in check after the US central bank delivered a considerable interest rate hike of 75 basis points.

Monetary policy or interest rates are among the tools used by central banks to stabilize inflation by controlling the money supply by raising borrowing costs.

Higher borrowing costs could make consumers and businesses spend less, reducing economic activity, lowering demand, and eventually lowering prices.

This month, the BSP delivered a hawkish 75 basis points increase in key policy rates, bringing the overnight reverse repurchase facility to 3.25 percent, overnight deposit facility to 2.75 percent, and overnight lending facility to 3.75 percent.

Michael Enriquez, the chief economist at Sunlife Investment Management and Trust Co., told Daily Tribune, “we’re looking at 6.2 percent inflation for July. We note the continuous decline in oil prices, which can further ease inflation in the coming months.”

For his part, Rizal Commercial Banking Corp. chief economist Michael Ricafort echoed his projection and said that “estimate for July 2022 inflation/CPI: 6.1 percent year-on-year. Mathematically, barring any new shocks, the peak for headline inflation could be reached at slightly above 6 percent until October 2022 and would start to ease after that.”

“Headline inflation would still be affected by delayed effects of the wage hikes [since June 2022], transport fare hikes [since June to July 2022], and other increases in the prices of other affected goods and services in the economy [or second-round inflation effects], as some businesses stagger or delay price hikes given the competition,” the Ricafort added.


Moreover, the economy and the hardest hit sectors are still reeling from the adverse effects of the pandemic, and the economic recovery in demand as the economy further re-opens towards greater normalcy could still be fragile, Ricafort said.

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