Inflation eases to 15-year low in November

The country’s inflation rate eased in November to its lowest level in 15 years, defying expectations of a rise due to fuel price hikes, but the Bangko Sentral ng Pilipinas (BSP) said yesterday any shift in interest rates is unlikely.

Inflation stood at 2.5 percent last month, compared with 3.2 percent a year ago and 2.7 percent in October as food, tobacco, clothing and housing prices stayed in check, the National Statistics Office said.

The benign November figure, the lowest in 15 years, indicates there is still not much demand pressure on prices, SP/MMS chief macroeconomics forecaster David Cohen said yesterday.

"You could certainly see the absence of demand pressure on prices," Cohen said.

At the same time, it did not seem to be affecting the overall performance of the economy, which has been showing moderate growth, he added.

Cohen said the inflation rate may further decelerate in December in the absence of demand pressure, despite the seasonal spending spree during the Christmas holidays.

Higher fuel prices did manifest themselves in month-on-month figures, with inflation rising slightly by 0.1 percent from minus 0.1 percent in October.

"It’s a good inflation performance but for now we will probably maintain the rates," BSP Deputy Governor Amando Tetangco, told reporters yesterday.

Tetangco added that the bank’s policy-making Monetary Board would consider the slide in inflation when it sets overnight rates at its next meeting on Dec. 19.

"The widening of the fiscal deficit could pose limitations to the conduct of monetary policy but this could be mitigated in part by the current low interest rate amid ample liquidity in the system," Tetango said.

With the peso weak and inflation benign, the BSP has held its benchmark overnight borrowing rate steady at a decade low of seven percent since March and the lending rate for banks at 9.25 percent.

"Peso stability is expected to remain the prerogative for the BSP for now given a ballooning budget deficit that is weighing on investor confidence," Charlie Lay, an economist at 4Cast Ltd, said in a note.

The deficit soared to P187.6 billion or about 4.7 percent of gross domestic product, in the first 10 months of 2002, bursting full-year targets for the third time.

The government then revised its shortfall estimate for this year to P223 billion or 5.6 percent of GDP.

The peso hit a 16-month low of 53.86 to the dollar last week, partly due to concerns over the deficit which prompted Fitch Ratings and Standard & Poor’s to cut their credit rating outlooks for the Philippines to negative.

"The move (a rate cut) would be useless because money would just go into the T-bill market because rates are higher there," said Jose Vistan, a senior analyst and economist at AB Capital Securities.

"The central bank cannot grow the economy by pumping money into the system, there is no (consumer) demand. We need to create more jobs, more investor confidence."

The central bank had expected consumer prices to have risen by three to 3.1 percent in November due to the effects of the El Niño weather phenomenon on crops.

Luz Lorenzo, an economist at ATR-Kim Eng Securities Inc, said rice imports may have kept prices of the staple from rising despite weak domestic production.

The government set an average inflation target of 4.5 to 5.5 percent this year. But inflation averaged just 3.2 percent in the January to November period, the government statistics office said.