Inflation eases to new low of 0.4% in September

MANILA, Philippines - Inflation eased to a new record low of 0.4 percent in September from 0.6 percent in August on the back of stable food prices and lower utility rates, the Philippine Statistics Authority (PSA) reported yesterday.

BSP officer-in-charge Diwa Guinigundo said inflation is expected to bottom out as the impact of the prolonged and severe El Niño weather condition and the weak peso is expected to kick in.

“Based on our latest forecasts, we should see inflation bottoming out on account of the impact of El Niño and the weak peso,” he said.

The BSP has set an inflation forecast of between 0.2 and one percent for September. Monetary authorities have set an inflation forecast of 1.6 percent for this year, 2.6 percent for 2016, and three percent for 2017.

“With supply conditions remaining generally favorable and demand continuing to be manageable, we expect inflation to keep within our forecasts of 1.6 percent for 2015, 2.6 percent for 2016 and three percent for 2017,” Guinigundo said.

According to Guinigundo, the benign inflation gives the BSP more space to keep interest rates steady.

“On this basis, the MB’s recent decision to keep monetary policy steady remains appropriate. Any development in the US Fed and China should be addressed by our preemptive moves last year which gave us the monetary space today,” he said.

Last Sept. 23, the BSP maintained its interest rates for the eighth straight policy-setting meeting since October last year. After raising key policy rates by 50 basis points last year, the BSP has kept the overnight borrowing rate at four percent and the overnight lending rate at six percent.

Average inflation for the nine-month period stood at 1.6 percent, the PSA said.

The slowdown in the rise in consumer prices was traced primarily to the annual declines in the indices of housing, water, electricity, gas and other fuels and transport.

Moreover, the PSA noted that slower annual increases were seen in the indices of all the other commodity groups except for the indices of communication, recreation and culture, education and restaurant and miscellaneous goods and services.

Last month, the government noted cheaper prices of the heavily-weighted food items such as vegetables, corn, fish, cooking oil, vegetables, calamansi and ginger.

The PSA also said a general downward price adjustments in kerosene and LPG were also observed in many regions as well as the lower charges in the electricity rates in the National Capital Region (NCR) and in many provinces.

Inflation has steadily been easing from 2.5 percent in February, 2.4 percent in March, 2.2 percent in April, 1.6 percent in May, 1.2 percent in June, 0.8 percent in July, 0.6 percent in August, and to 0.4 percent in September.

ING Bank Manila senior economist Joey Cuyegkeng said “modestly higher inflation is expected toward the end of the year and in 2016 due to the impact of El Niño.

For one, the National Food Authority (NFA) is set to import 750,000 metric tons of rice in preparation for the impact of El Niño on the price of rice.

“Government’s measures to ensure rice prices do not soar due to El Niño is in place through the importation of another 750,000 MT of rice for delivery later this year and early 2016,” Cuyegkeng said.

For his part Barclays Bank economist Rahul Bajoria said overall price pressures remain muted despite poor weather conditions and September inflation remained close to multi-year lows. – With Ted Torres