Renewed geopolitical tensions in the Middle East rekindled volatility in global crude prices, leading to another round of oil price hikes domestically. Energy and food inflation, particularly for rice, once again took center stage in the July inflation story.
Metrobank forecasts headline inflation at 6.5% in July.
Recent tensions in the Middle East briefly pushed global crude prices back to elevated levels in July, with Brent prices breaching the USD 100 threshold before falling to the 80- to 90-level by the end of the month.
Given this backdrop, diesel prices saw persistent increases throughout July, while gasoline prices saw mixed movement during the period. Despite this mixed movement, we expect oil to remain among the top contributors to July inflation, as prices remain elevated year-on-year, although annual price increases in July are expected to have been slower than in June.
Similarly, electricity prices will remain a top contributor to inflation this month, after the three major electricity providers increased power rates on the back of higher generation and transmission costs driven by elevated oil prices and a weaker peso.
Rice prices continued their month-on-month decline in July, though at a slower pace compared to June, mirroring the trend in international rice prices. Nevertheless, rice prices remain elevated year-on-year due to lingering production cost pressures, keeping the grain among the main sources of inflationary pressure in July.
Meanwhile, other food prices recorded mixed movements, though they likely remained a net upward driver of inflation in July.
Vegetable and fruit prices provided upside pressure, stemming from July’s strong typhoons that threatened supply for these products. Meanwhile, meat prices may have eased slightly year-on-year, given improved supply compared to last year.
Still, second-round effects from elevated oil costs are expected to gradually add pressure, keeping food prices on an upward trajectory in the near term.
Renewed volatility in the global crude market once again set the tone for headline inflation, as domestic pump prices followed suit and later caused second-round effects on other commodities. Metrobank expects headline inflation to remain above the Bangko Sentral ng Pilipinas (BSP)’s 3±1% target in July.
Above-target inflation will keep the BSP on a hawkish path this year, with Metrobank projecting further interest rate hikes. The combination of rate hikes and high inflation will also pressure local bond yields. Moreover, the dollar-peso exchange rate is still expected to remain above 60 in the near term, as the country’s current account deficit widens due to costlier imports.
MARIA KAILA BALITE is a Research Officer of the Research and Market Strategy Department, Institutional Investors Coverage Division, Financial Markets Sector, at Metrobank. She holds a master's degree in applied economics and majored in Financial Economics for her bachelor's degree, both from De La Salle University Manila. Outside of work, she enjoys watching thriller movies and K-dramas.
JOAQUIM “KIMI” PANTANOSAS is a Research Officer of the Macro Research Department, Markets Advisory Division, Financial Markets Sector, at Metrobank. He holds a BS in Statistics from the University of the Philippines-Diliman, where he developed an interest in quantitative research as a tool for complex problem-solving. He enjoys a good laugh with the people he cares about.
RANS SULAY is a Metrobank intern in the Financial Markets Sector. He is a recent graduate of Ateneo de Manila University with a degree in BS Management. Outside of work, he enjoys reading, exercising, and playing video games.
