BENIGN INFLATION gives policy makers enough room to maneuver in sustaining policies to stimulate growth, according to the Department of Finance (DoF).

In an economic bulletin on Tuesday, Finance Undersecretary and Chief Economist Gil S. Beltran said inflation is still “manageable despite supply issues arising from the pandemic.”

“This allows significant elbow room for policy makers to sustain economic policies supportive of growth,” he said.

Headline inflation picked up to 2.5% in June from 2.1% in May, although slower than 2.7% a year earlier.

Year to date, inflation averaged at 2.5%, within the 2-4% target of the central bank.

Last month’s uptick in inflation was largely due to the faster increase in transportation costs and prices of alcoholic beverages and tobacco products. However, easing of prices in the food basket had tempered the increase, the DoF economic bulletin said.

Month on month, data showed inflation inched up by 0.49% due to the 6.77% rise in transportation costs.

Mr. Beltran attributed this to crude oil prices picking up after a slump in the previous months at the height of the lockdown. In May, Dubai oil prices jumped 49% to $30.47 per barrel from $20.47 per barrel in April.

In a July 7 note, Philippine National Bank (PNB) Vice-President and Head of Research Division Alvin Joseph A. Arogo said the uptick in the June inflation pushed the country’s real policy rate in the negative territory at -0.25% from 0.15%, making it among the lowest in the ASEAN region.

Mr. Arogo said this was based on the 2.25% overnight repurchase rate minus the inflation average of 2.5%, which could be deeper at -0.75% if the overnight deposit rate of 1.75% is used.

“Given this relatively aggressive monetary accommodation, we believe that the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) may have a more challenging task of balancing supporting economic growth amid COVID-19 but still promoting price stability,” he said.

The PNB research team expects inflation to average at 2.4% for the year, with a softer 2.3% print in the second half.

“We assume that there would be no additional spikes in transport cost and that the weaker economic growth in 2Q20 would keep overall prices subdued,” Mr. Arogo said.

He said inflation could quicken to 2.8% next year once the economy recovers from the pandemic.

Several stimulus measures are pending in Congress, including the P1.3-trillion Accelerated Recovery and Investments Stimulus for the Economy (ARISE) bill, the P140-billion Bayanihan 2 bill and Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) bill that seeks to reduce corporate income tax and overhaul the incentive system.

The Congress will resume its regular session on July 27.

On the monetary side, the BSP has slashed interest rates by a total of 175 basis points this year to bring down benchmark interest rates to record lows of 2.25%, 2.75%, and 1.75% for overnight reverse repurchase, lending, and deposit facilities, respectively. — Beatrice M. Laforga