June inflation estimated at 5.4% — DBS

HEADLINE inflation in June is likely to have declined for a fifth straight month to 5.4% due to base effects from the year-earlier period alongside easing prices for food and energy products, DBS Bank Ltd. said.

In a July 3 report, DBS Bank Senior FX Strategist Philipp Wee and Economist Chua Han Teng said the inflation data, due for release on July 5, Wednesday will likely reflect a continued easing in inflationary pressure.

“For the Philippines, favorable base effects should have allowed headline inflation to cool to 5.4% year on year from 6.1% in May, due to broad-based moderation across core, food, and energy-related items,” the bank said.

The bank’s inflation estimate for June is lower than the 5.5% median estimate of 17 analysts in a BusinessWorld poll last week.

It is also within the 5.3-6.1% forecast range of the Bangko Sentral ng Pilipinas (BSP) for the month.

The June 2022 reading had been 6.1%.

If June inflation comes in as projected, it would mark the 15th consecutive month that inflation breached the BSP’s 2-4% target range.

“The incoming data is likely to provide comfort to the BSP to extend its steady interest rate path to ensure headline inflation returns to its 2-4% target by end-2023,” DBS Bank said.  

The Monetary Board extended its policy pause for a second straight meeting in June, keeping the benchmark rate at a near 16-year high of 6.25%. The monetary authorities had hiked borrowing costs by 425 basis points between May 2022 and March 2023.

DBS Bank expects Philippine benchmark interest rates to remain steady at 6.25% this year, before easing to 5.75% in the first quarter of 2024. It also expects the BSP to cut the key policy rate further to 5.25% in the second quarter next year.

DBS Bank sees inflation averaging 5.4% this year, before easing to 3.2% in 2024.

The 2023 projection is in line with the BSP’s 5.4% full-year inflation forecast, while the estimate for 2024 is higher than the central bank’s 2.9%.

Separately, in a report dated July 4, Pantheon Macroeconomics also gave an inflation estimate of 5.4% for June due to moderating food and transport costs.  

“We reckon that core (inflation) will fall below 7% for the first time since December,” it added.

Core inflation, which discounts volatile food and fuel prices, slowed to 7.7% in May from 7.9% a month earlier. It has averaged 7.8% this year.

Newly appointed BSP Governor Eli M. Remolona said inflation will return to the 2-4% target range before the year ends.

The Monetary Board’s next policy meeting is on Aug. 17. — Keisha B. Ta-asan