The inflation rate April further slowed to a five-month low of 2.2 percent from 2.5 percent in March, pulled down by the decrease in the indices of transport, alcoholic beverages and tobacco, the Philippine Statistics Authority said Tuesday.
The April rate was the slowest since 1.3 percent in November 2019. It was slower than 3 percent in April a year ago and brought the average inflation rate in the first four months to 2.6 percent, or below the midpoint of the target range of 2 percent to 4 percent.
Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the April inflation was within the forecast range of 1.9 percent to 2.7 percent for the month. He said the number was consistent with the BSP’s prevailing assessment that inflation was expected to be benign over the policy horizon due to the adverse impact of the coronavirus pandemic on the domestic and global economy.
“The latest baseline forecasts indicate that inflation could settle at the low end of the government’s target range of 3 percent plus or minus 1.0 percentage point, at 2 percent for 2020 and 2.5 percent for 2021,” Diokno said.
“Meanwhile, the domestic economy will likely follow a U-shaped recovery path. Growth is expected to bounce back to its potential output growth in 2021 supported by the measures under the government recovery plans,” Diokno said.
He said in addition to the monetary policy actions that have been announced earlier, the BSP remained ready to deploy any available measures in its toolkit as the regulator continues to assess the impact of the pandemic on the domestic economy.
ING Bank Manila senior economist Nicholas Antonio Mapa said in a report the deflation in transport costs (-6.1 percent) and subdued utility expenses (0.3 percent) likely weighed on the overall headline number while upside pressure was likely driven by food items (3.4 percent) despite government price caps on select items during the Luzon-wide enhanced community quarantine.
“Despite the slower inflation print, we do not expect the central bank to resort to additional aggressive policy rate cuts in the near term. BSP has offloaded a hefty 125 bps worth of rate cuts for 2020 and Governor Diokno did hint at pausing momentarily to gauge the impact of previous rate cuts before acting further,” Mapa said.
“We expect only a 25 bps policy cut if ever BSP opts to ease further as the policy rate edges closer to BSP’s own inflation forecast of 2.2 percent for the year,” Mapa said.
Mapa said price pressures appeared to be on the downtrend with demand side pressure and the oil factor weighing on overall headline inflation. He expects inflation to be subdued for a month after the end of the lockdown but he also foresees a steady acceleration in price pressures in the second half of the year as supply side pressures outweigh the demand side pull.
“Accelerating inflation in the third quarter, the period of least favorable base effect in 2020, is another reason for BSP to manage further policy rate cuts and reduction to reserves and we expect only marginal easing from here with fiscal stimulus kicking in to support the economy,” Mapa said.
The PSA noted a further decrease in the annual rate of transport index at 6.1 percent in April. This was the lowest inflation recorded in this group’s index since October 2015. In addition, slower annual mark-ups were seen in the indices of alcoholic beverages and tobacco, 17.9 percent; clothing and footwear, 2.6 percent; housing, water, electricity, gas, and other fuels, 0.3 percent; health, 2.8 percent; communication, 0.3 percent; and restaurant and miscellaneous goods and services, 2.4 percent.
Meanwhile, the index of the heavily-weighted food and non-alcoholic beverages posted a higher annual increment of 3.4 percent during the month. The indices of the rest of the commodity groups such as furnishing, household equipment and routine maintenance of the house, recreation and culture, and education retained their previous month’s annual growth rates.
Core inflation, likewise, continued to move at a slower rate in April 2020 at 2.8 percent, from 3.0 percent in March 2020. In April 2019, core inflation stood at 3.4 percent.
The annual rate of the food index at the country level picked up further to 3.4 percent in April 2020, from 2.6 percent in the previous month.