Inflation close to four-year high

05 Jul 2022

Inflation in the Philippines last month reached its highest level in almost four years, fuelling forecasts for more rate hikes and aggressive action by the central bank to ease price pressures.

The consumer price index increased 6.1% in June compared to the year before, the third straight month inflation has surpassed the official 2%-4% target range, predominantly driven by increased transport, utilities and food costs, according to the statistics agency on Tuesday.

The Philippine Statistics Authority has not yet released core inflation data since moving to the 2018 base year in setting changes in consumer prices, Reuters reports.

The headline figure outperformed the average forecast in a Reuters poll of 5.9%, but remained within the 5.7%-6.5% range estimated by the central bank for the month.

During the first six months of the year inflation averaged at 4.4%.

The Bangko Sentral ng Pilipinas (BSP) could contemplate larger rate hikes to boost the Peso and curb inflation, yet will not be compelled to match the policy tightening moves by the U.S. Federal Reserve, according to central bank governor Felipe Medalla.

Speaking ahead of June’s inflation figures, Security Bank economist, Robert Dan Roces said the central bank’s Monetary Board "might consider a one-time, pre-emptive 50 basis points policy rate hike when it meets on August 18 if inflation's upside risks remain persistent."

The Bangko Sentral ng Pilipinas has tightened monetary policy in an attempt to contain inflation pressures, with 25 basis points of consecutive rate hikes in May and June.

Inflation could also be driven up by a weaker Peso, whilst similarly impacting consumer purchasing power, the report goes on to add. The tightening gap between interest rates in the Philippines and the United States has weighed on the Peso, trading close to a 17-year low against the greenback.