Inflation rate cooled down to 0.8 percent in October, the slowest in three and a half years, on lower oil and rice prices, the Philippine Statistics Authority said Tuesday.
The October figure moderated from 0.9 percent in September and 6.7 percent a year ago. This brought the average inflation in the first 10 months to 2.6 percent, below the midpoint of the 2019 target range of 2 percent to 4 percent.
The Bangko Sentral ng Pilipinas said the October inflation was also within its forecast range of 0.5 to 1.3 percent for the month.
“Inflation for the month was driven by higher prices of electricity, LPG, water, and selected food items. These were tempered by lower domestic oil and rice prices,” the BSP said in a statement.
It said, however, that inflation would likely pick up starting November. “The latest inflation outturn is consistent with the BSP’s prevailing assessment that inflation has likely bottomed out in October and could start to pick up slightly in the remaining months of 2019 as base effects start to dissipate,” it said.
The BSP said the 2019 average inflation would firmly settle within the target range of 2 percent to 4 percent for 2019 to 2021. It said crude oil prices started to stabilize following the recent volatility caused by geopolitical tensions in the Middle East.
“Meanwhile, deepening trade tensions between China and the US along with other countries in the region have raised global economic uncertainty, which pose a downside risk to the inflation outlook,” it said.
PSA data showed that food and non-alcoholic beverages posted deflation for the second consecutive month at 0.9 percent in October 2019, a sharp reversal from the 9.4 percent inflation recorded last year.
Rice deflation was observed for the sixth consecutive month, dropping further to -9.7 percent in October 2019 from -8.9 percent in September.
“The government has been driven and focused in its anti-inflationary efforts this year. We hope to further keep inflation manageable and within the government’s target,” National Economic and Development Authority Undersecretary fAdoracion Navarro said in a statement.
Navarro said that although the government welcomed the easing of inflation, the country should be on the lookout for upside risks such as cases of African swine fever which was reported in Rizal, Pangasinan, Bulacan, Nueva Ecija, Pampanga, Cavite and Quezon City.
“The livestock industry in the said ASF-stricken areas, which accounts for 21.7 percent of the country’s total hog production last year, remains at high risk. The government and private companies must collaborate to manage, contain, and control the spread of the disease,” Navarro said.
ING Bank Manila senior economist Nicholas Mapa said the base effects played a major role in forcing the headline print below 1 percent for a second straight month with heavyweight food and transport sectors posting deflation.
“Together, the food and transport components combine for 46 percent of the CPI basket, posting negative inflation prints of -0.9 percent and -1.7 percent, respectively. But with the base effects from the peak of 2018 fading quickly, we expect inflation to revert to target as early as December,” Mapa said.
Mapa said the supply side bottlenecks were to blame for the inflation surge in 2018 with the components of food and transport posting inflation prints as high as 9.7 percent and 8.9 percent last year.
He said with improved weather condition, the rice tarrification and subdued oil prices now in effect, headline inflation dropped rather quickly and was expected to remain benign given the outlook for both commodity prices and weather conditions.
“After working quickly to reverse the aggressive tightening of 2018, Bangko Sentral ng Pilipinas Governor Diokno is expected to resume easing monetary policy in 2020 as he looks to help give the domestic economy an added boot amidst the projected global slowdown,” Mapa said.
“With inflation forecasted to remain within target even after base effects wash out, the BSP will continue to work to provide an environment conducive for economic growth for as long as the price objective is in hand,” he said.
ING forecasts inflation to settle at 3.1 percent in 2020, paving the way for the BSP to cut policy rates by another 50 basis points, with the first move expected in the first quarter of 2020, Mapa said.
