August Inflation Expected to Fall Below 4%, Easing Economic Pressure in the Philippines

Economists expect inflation in the Philippines to ease in August, potentially dropping below the central bank’s 4% target. This decline is attributed to stable food prices, lower oil costs, and a stronger peso, offering some relief from recent economic pressures.

August Inflation in the Philippines Expected to Drop Below 4%, Driven by Stable Food Prices and Stronger Peso

Economists anticipate that inflation will be slower in August, potentially falling below the central bank's four percent objective even though food prices are stable, per Philstar.com.

According to Robert Carnell, the regional director of research and chief economist for Asia-Pacific at ING, inflation is expected to decrease from the nine-month high of 4.4 percent in July to 3.3 percent.

“We calculate that overall prices remained flat from last month, with non-rice food prices a slight drag offsetting some increases elsewhere. We don’t expect a repeat of the housing-related increase last month,”he said.

According to Jun Neri, the lead economist at the Bank of the Philippine Islands, which Ayala heads, inflation is expected to decrease to 3.6 percent in August due to a month-over-month decrease in the prices of essential food items. However, there are potential benefits associated with increased energy and transportation costs.

Sarah Tan, an economist at Moody's Analytics, anticipates that inflation will stabilize at 3.6 percent in August due to reduced tariff rates on rice, which could potentially reduce the price of rice.

“The impact from Typhoon Carina that struck in July is expected to show up in August’s print in terms of higher prices for agricultural produce like vegetables,” she said.

She also observed that electricity rates increased in August, with Manila Electric Co. increasing rates by P0.0327 to P11.6339 per kilowatt-hour for a typical household, a rise from the previous month's P11.6012 per kWh.

Moody's Analytics anticipates that inflation will remain within the Bangko Sentral ng Pilipinas (BSP)'s two to four percent target for the remainder of the year.

Nevertheless, the potential for electricity rate increases to increase pricing is uncertain. The peso's strength is also unsure at the onset of the US Federal Reserve's monetary policy easing cycle, as any currency weakness could impede the slowdown of inflation.

According to Robert Dan Roces, the Security Bank's chief economist, inflation is expected to stabilize at 3.7 percent, primarily due to excessive rainfall and weak rice imports disrupting local food production.

“However, the overall inflationary pressure may be partially offset by a stronger Philippine peso and lower oil prices in August, which could mitigate imported inflation and reduce transportation costs,” Roces said.

UnionBank Revises Inflation Forecasts as Lower Oil Prices Help Offset Rising Electricity Rates

According to Ruben Carlo Asuncion, the chief economist at UnionBank, inflation may have decreased to four percent due to a 10 percent decrease in petroleum prices and price inflation. This could have mitigated the anticipated 6.7 percent increase in electricity rates last month.

Asuncion stated that UnionBank has increased its inflation forecast for 2024 from 3.6 percent to 3.7 percent. Conversely, it decreased its projection for 2025 from 3.7 percent to 3.5 percent.

“While headline inflation attempts to regain its disinflation bearings, we projected core inflation bottoming out at 2.8 percent year on year in October before inching higher to end the year at 3.2 percent,” he said.

The housing rental and utilities inflation rate is also anticipated to reach its highest point in August. Additionally, the education inflation rate is expected to decrease to 3.7 percent in December.

However, Asuncion noted that potential upside risks are still associated with potential escalations in geopolitical tensions in the region and the Middle East.

Miguel Chanco, Pantheon Macroeconomics' chief economist for emergent Asia, anticipates that inflation will decrease to 4.1 percent in August due to the decrease in pump prices from the previous month.

“Inflation should fall more dramatically from September, as favorable food-price base effects kick in, stemming from the surge in rice prices around this time last year,” he said.

Chanco stated that inflation is expected to remain within the BSP's target in the upcoming months unless there are any new external or domestic disruptions.

“As things stand, the primary risk from our perspective is to the downside; rice prices have yet to react materially to the recent cut in tariffs while, more fundamentally, underlying inflation should remain under pressure from the economy’s slowdown,” he said.