How low can inflation go? Lower than the record-low inflation print in May this year, economists said.
Consumer prices in June were seen decelerating further from 1.7 percent in May, as lower prices in key food items, coupled with statistical base effects, continue to pull inflation down this year.
Economists said inflation in June could slow to 1.5 percent based on forecasts by six economists polled by the BusinessMirror.
Inflation at this level is lower than the 1.7-percent inflation print in May, the lowest in 20 years, according to the Philippine Statistics Authority (PSA).
The forecast was anchored on benign prices of food that account for more than half of the consumer price index (CPI), as well as on lower energy prices and on so-called favorable base impact.
Bank of the Philippine Islands economist Nicholas Mapa—who forecast inflation averaging 1.4 percent in June—said slower inflation in the basket-heavy food component and a rate adjustment in utilities were seen as the main drivers of the forecast. “We could see inflation continue to be below 2 percent in the near term on base effects [inflation peaked in August 2014]. If you recall, food inflation spiked in mid-2014 on the back of higher food prices [rice prices, in particular] on tight supply,” Mapa added.
This view finds support from ING Bank Manila economist Joey Cuyegkeng, who also said inflation should average 1.4 percent in June.
“Softer energy rates and prices, moderate price pressures on major food items more than offset education-related rate increases,” Cuyegkeng said.
Cuyegkeng also said the assumption that inflation will average 2 percent for 2015 is subject to possible downward revision.
Standard Chartered economist Jeff Ng also said inflation was likely dragged lower by the high base effects on food prices last year at the height of the congestion problem at the Port of Manila. He forecast inflation in June averaging 1.6 percent. Meanwhile, Security Bank economist Patrick Ella said inflation will likely hit 1.4 percent on the back of a weak peso for the month.
First Metro Investments Corp. Treasury Head and Senior Vice President Reynaldo Montalbo Jr., meanhwhile, sees inflation averaging 1.5 percent, while Singapore-based bank DBS Bank economist Gundy Cahyadi sees inflation at 1.8 percent.
“At this juncture, the central bank seems to be in a pretty good place—GDP [gross domestic product] growth momentum remains strong while CPI inflation is well within the comfort zone. There is no reason to shift policy stance for now. But watch the core inflation number going forward as it has been trending down in recent months,” Cahyadi said.
All forecasts are within the central bank’s official forecast for the month ranging 1.1 percent to 2 percent.
The PSA is expected to release the June inflation numbers on Tuesday, July 7.