MANILA, Philippines – The Philippine Statistics Authority reported Tuesday, Oct. 6 that headline inflation rate recorded its lowest level, easing further to 0.4 percent in September 2015 from 0.6 percent in the previous month and from 4.4 percent in September 2014.
“We expect the current low inflation environment exhibited in the first nine months of 2015 to persist throughout the rest of the year, more so, as international oil prices continue to remain low and are not expected to increase significantly in the near term,” said Economic Planning Secretary Arsenio M. Balisacan.
Food subgroup
Inflation in the food subgroup continued to ease in September 2015, (0.7% from 1.1%) following slower price adjustments in majority of its sub-items such as breads and cereals, fish, fruits, and rice. The declining prices of regular milled rice due to sufficient supply partly supported the downward trend in overall food prices. On the other hand, meat (0.4% from 0.3%) and vegetables (2.3% from 2.0%) exhibited slightly faster upward price adjustments relative to the previous month.
Non-food inflation also declined (-0.2% from 0.2%) resulting from the sustained lowering of prices of electricity, gas, and other fuels.
Core inflation
Meanwhile, core inflation—which excludes selected volatile food and energy prices—slid further to 1.4 percent from 1.6 percent in August 2015 and 3.4 percent in September 2014. Core inflation in the first nine months of 2015 averaged at 2.1 percent.
“The slowdown of core inflation further indicates that prices across a broad range of consumer items continue to remain stable,” the Cabinet official said.
Inflation for the National Capital Region (0.1% from 0.2%) and other regions in the country (0.4% from 0.8%), were also restrained in September 2015 relative to the previous month.
Defying expectations
The Bangko Sentral ng Pilipinas (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.
BSP has set an inflation forecast of between 0.2% and 1% for September. Monetary authorities have set an inflation forecast of 1.6% for this year; 2.6% for 2016; and 3% for 2017.
The benign inflation gives the BSP’s Monetary Board more space to keep interest rates steady.
On September 23, BSP kept interest rates steady for the eighth straight policy-setting meeting since October 2014. After raising key policy rates by 50 basis points last year, BSP has kept the overnight borrowing rate steady at 4% and the overnight lending rate at 6%.
Credit Suisse also lowered its inflation forecasts for the country to 1.4% instead of 2.2% for this year and to 2.4% instead of 3.7% in 2016 due to the benign inflation environment.
Standard & Poor also said the country’s inflation easing to 2.1% this year before accelerating to 4% next year.
When inflation rises, purchasing power falls. The low inflation environment defied analysts’ earlier expectations that it would not go any lower than 1.6%, the record for May 2014, citing strong pressures from the probable impact of drought, poor agricultural harvest, and election-related spending in the coming months.
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 that is now being addressed by the Aquino administration.”
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.
Bajoria said BSP appears largely comfortable with its monetary policy stance but could tweak the reserve requirement ratio of banks even with historically low levels of inflation.
“We believe BSP is watching liquidity conditions more closely, and it is likely to inject liquidity, possibly by easing banks’ reserve requirement ratio, if conditions were to deteriorate,” Bajoria added.
Bracing for El Niño
Balisacan noted that while low oil prices are likely to provide a cushion to upside inflationary pressures, government should remain wary of the upside risks to inflation such as the current El Niño episode in the country.
“Government must ensure that food supply is sufficient by improving the level of inventories and efficiency of the distribution system. Continued monitoring of drought occurrence in agricultural areas is necessary to ensure timely policy actions, including importation of rice and other basic commodities to augment domestic supply,” Balisacan said.
The NEDA Director-General added that expanding agriculture support structures from production areas to the demand centers will also further bring down the cost of transporting goods and services.
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.
The NEDA director-general added that expanding agriculture support structures from production areas to the demand centers will also further bring down the cost of transporting goods and services.
As the El Nino intensifies, Balisacan said that the government may consider increasing the number of agricultural workers as potential beneficiaries in the Pantawid Pamilyang Pilipino Program to offset farm output losses. He said government must also ensure that access to finance in the agriculture and fisheries sectors remains unhampered./Junction News Team with Rappler.com
