Philippine inflation drops to 7-month low

05 Aug 2021

Inflation in the Philippines reached a seven-month low in July according to government data published on Thursday.

The central bank added that prices could ease further after stringent coronavirus restrictions are reintroduced, allowing more scope to maintain interest rates at an all-time low for longer.

The Bangko Sentral ng Pilipinas (BSP) has kept its policy rate at 2.0% since November and is due to review policy settings on 12 August, two days after Q2 economic growth data is published.

The Consumer Price Index increased 4.0% compared to the previous year according to the data, nearing the bottom end of the central bank’s forecast range of between 3.9% and 4.7% for the month, and slightly surpassing the 3.9% average forecast in a Reuters’ poll.

This is the first time in 2021 that inflation remained within the year’s official target range of between 2% and 4%.

Core inflation – excluding volatile food and fuel prices – stood at 2.9% compared to 3.0% in June.

Central bank governor, Benjamin Diokno forecasts inflation to remain within the target band for 2022 to 2023, with prices predicted to weaken further by lockdown measures.

Quarantine restrictions are set to be tightened in Manila as well as a number of provinces from Friday in a bid to curtail a rise in Covid cases fuelled by the Delta variant.

Diokno said in a statement: “The emergence of new coronavirus variants and delays in easing lockdown measures are seen to pose downside risks to both demand and inflation.”

The governor went on to add that the BSP would support the economy for as long as needed, yet tighter restrictions were obscuring recovery prospects.

The government has kept its economic growth targets at 6.0%-7.0% for 2021 and 7.0%-9.0% for 2022.

According to ING senior economist Nicholas Mapa, the central bank will likely keep rates “on hold” for the remainder of the year.