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Inflation slides to 35-month low of 1.7%

Inflation rate in August dropped to a 35-month low of 1.7 percent from 2.4 percent in July, a development that could prompt monetary authorities to further reduce the benchmark interest rates in their meeting later this month.

The Philippine Statistics Authority said Thursday the inflation slowdown was due to slower increases in the prices of food and non-alcoholic beverages. The August print was the slowest since September 2016 when it reached 1.7 percent.  It was also significantly lower than 6.4 percent in August 2018.

This brought the average inflation in the first eight months of 2019 to 3.1 percent within the target range of 2 percent to 4 percent set by the government for the year.

Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the August inflation was also within the BSP’s forecast range of 1.3 percent to 2.1 percent for the month.

“The latest inflation outturn is consistent with the BSP’s prevailing assessment that inflation will continue to decelerate in the third quarter of 2019 and pick up slightly in the fourth quarter of 2019,” Diokno said.

He said the average inflation would firmly settle within the target range of 2 percent to 4 percent for 2019 to 2021. “Ample domestic food supply conditions along with lower global oil prices have contributed to a manageable inflation environment,” Diokno said.

He said the deepening trade tensions between China and the US along with ongoing geopolitical risks raised global economic uncertainty which posed a downside risk to the inflation outlook.

“The BSP will continue to keep a close watch over latest economic developments here and abroad to ensure that the monetary policy stance remains consistent with the BSP’s price stability objective while being supportive of economic growth,” Diokno said.

ING Bank Manila senior economist Nicholas Mapa said food inflation, the main culprit for higher inflation in 2018, was the main reason for the sharp deceleration in price trends this year, thanks to new legislation allowing increased imports of the all-important staple of rice. 

“The food basket accounts for nearly 32 percent of the entire CPI basket and given its heft, has helped drag inflation below target.  Meanwhile, utilities and transport costs have also seen softer price gains given the relatively benign crude oil environment,” Mapa said in a report Thursday.

Mapa said with inflation careening below the BSP’s own target, Diokno would likely deliver on his pledge and cut policy rates by an additional 25 bps on Sept. 26.

“Monetary easing would also make sense given that the second-quarter GDP growth has slid to 5.5 percent, well below the government’s 6 to 7 percent fighting target for the year.  Meanwhile, we also expect the BSP to roll back its reserve requirement ratio by 100 bps in the fourth quarter,” Mapa said.

The PSA noted the slower annual increase in the index of the heavily-weighted food and non-alcoholic beverages at 0.6 percent. Other commodity groups also posted slower annual rates during the month, such as housing, water, electricity, gas, and other fuels, 1.8 percent; health, 3.1 percent; recreation and culture, 1.8 percent; and restaurant and miscellaneous goods and services, 3.2 percent.

Excluding selected food and energy items, core inflation eased further to 2.9 percent in August from 3.2 percent in July and 4.8 percent in August 2018.

Topics: inflation rate , Philippine Statistics Authority , Bangko Sentral ng Pilipinas , Benjamin Diokno
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