The rise in consumer prices slowed to a near four-year low last July amid steady energy prices and the modest rise in food costs, government data released Tuesday showed.
The central bank hinted at further adjustments in its monetary policies, citing the slower-than-expected rate in price increases provided space for accommodative policies that would counter the possible effects of weak global economic conditions on the Philippines.
Inflation for July was 2.5 percent, the lowest since September 2009. Although this was within the Bangko Sentral ng Pilipinas’ (BSP) forecast of 2.2 – 3.1 percent for the month, July’s low inflation brought the year-to-date average to 2.9 percent. This was also lower than the BSP’s full-year target of 3-5 percent. Inflation for June was also adjusted to 2.7 percent from the previous 2.8 percent.
“This provides the BSP room to make any further adjustments to policy stance, if needed, to address possible effects of changes in the growth trajectory of our main trading partners, including the US, Japan and China,” BSP Governor Amando M. Tetangco Jr. said.
He added that “shifts in investor sentiment” away from emerging markets like the Philippines could weaken the peso further, making imported products such as fuel more expensive.
He said the BSP still expected inflation for the year to fall within the target range, adding that the deceleration reinforced the forecast that price increases would not pose problems for the economy in the coming months.
“The comments by the [BSP] governor suggest that the central bank feels confident about possible maneuvers to support the economy and counter uncertainty in the external environment,” HSBC said in a separate comment, following the release of inflation numbers.
HSBC cited the deceleration in the expansion of bank lending and remittance flows from migrant Filipino workers as possible risks to the country’s growth. Economic conditions abroad, particularly in China, which is expected to grow slower than the Philippines this year, are potential drags on the local economy, it said.
“Even with the global environment likely to improve in the fourth quarter, the BSP will not take any chances and do what it can in the meantime to support spending,” the London-based bank said.