LOWER fuel prices, reduced costs of essential food items, and favorable base effects could contribute to a decline in inflation in August, analysts said, further raising the possibility of more rate cuts.

The median forecast in The Manila Times poll of economists was 3.7 percent, down from July's 4.4 percent and within the Bangko Sentral ng Pilipinas' (BSP) 2.0- to 4.0-percent target.

It also fell within the central bank's 3.2-to 4.0-percent estimate for the month.

All but two of the economists expect consumer price growth to remain above the target for two consecutive months.

Official inflation data for July will be released by the Philippine Statistics Authority this Thursday.

Metrobank Research economist Nicholas Antonio Mapa, having the lowest forecast of 3.2 percent, said that lower fuel, vegetable, fish and rice prices could prompt inflation to settle within target range last month.

Upward pressure, meanwhile, would be from higher beef and electricity prices, Mapa said.

Mapa argued that this could give the central bank enough room to cut rates in its last two meetings this year, especially with the stronger second quarter growth at 6.3 percent.

Meanwhile, ING Manila Bank Asia Pacific Regional Head of Research Robert Carnell expects inflation to drop to 3.3 percent, assuming no further price hikes, which could lead to a significant decline in August.

"We calculate that overall prices remained flat from last month, with non-rice food prices a slight drag offsetting some increases elsewhere," Carnell said, stressing that housing-related increase is unlikely in August.

"The BSP made a brave decision to cut rates last month ahead of the US Fed, and this data should enable them to cut rates again soon without imperilling the Philippine peso," he added.

HSBC Global Research economist Aris Dacanay, on the other hand, said that lower tariff rates could bring inflation down to 3.5 percent in August and continue to ease in the following months.

"Adding to the disinflationary impulse is the significant reduction in fuel prices throughout the month," Dacanay said.

Philippine National Bank economist Alvin Arogo and Sun Life Investment Management and Trust Corp. economist Patrick Ella both expect inflation to drop to 3.6 percent.

Arogo said that favorable base effects, particularly for rice, will outweigh the lingering effects of the recent typhoon on food prices, leading to a drop in inflation last month.

Ella also sees base effects aiding in reducing inflation, which he believes will support the BSP's rate-cutting cycle.

Effect of typhoon

Security Bank Corp. chief economist Robert Dan Roces said inflation could have reached 3.7 percent, likely driven by food basket inflation due to weak rice imports and heavy rainfall disrupting local food production.

"These factors have likely led to sustained growth in domestic food prices, particularly affecting rice," Roces said.

"However, the overall inflationary pressure may be partially offset by a stronger Philippine peso and lower oil prices in August, which could mitigate imported inflation and reduce transportation costs," he added.

For his part, Rizal Commercial Banking Corp. chief economist Michael Ricafort believes August inflation fell to 3.8 percent due to reduced tariffs on imported rice and recently lower global rice prices.

He said this "could justify further BSP rate cuts that would match any future Fed rate cuts from 2024-2026 to maintain healthy interest rate differentials."

Dean Emmanuel Lopez of University of Sto. Tomas Graduate School and Union Bank of the Philippines chief economist Ruben Carlo Asuncion said inflation likely hit the upper-end target at 4.0 percent.

Lopez said that stable food and energy prices, along with the appreciation of the peso against the US dollar, are contributing factors.

"This will continue to improve towards the last quarter of the year, when remittances start to pour in," Lopez said.

Asuncion, on the other hand, said that the decline in rice prices is a major factor in easing inflation.

While the impact of food prices is slightly higher than in July, Asuncion argued that the contribution of nonfood items has increased marginally.

"We also assume the same, if not marginal higher upticks, for the rest of the commodities in the CPI basket for the covered month," Asuncion said.

Pantheon Macroeconomics economist Miguel Chanco, meanwhile, expects inflation to decline but still above the target at 4.1 percent.

He noted that a significant drop in transport inflation is expected, adding that food inflation will decrease only slightly but remain relatively persistent.

Having the highest forecast of 4.2 percent, Mitzie Irene Conchada of De La Salle University said that the recent cut in rice import tariffs should lower rice prices in the coming months. However, other factors, like the impact of Typhoon Carina, could keep prices high.

"External factors such as calamities and external events could affect inflation and result in an upward trend towards the end of the year," Conchada said.

"Furthermore, I think that the BSP will keep its interest rates in its next policy meeting," she added.