Bangko Sentral sees further slowdown in inflation

Consumer price increases likely slowed further in September as the cost of food stabilized and fuel remained cheap, a central bank forecast this week showed.

In a statement, Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said it remained wary of possible pressures that could push inflation up in the coming months.

“The BSP will continue to monitor evolving price trends to ensure price stability conducive to balanced and sustainable economic growth,” the central bank chief said on Tuesday.

Inflation is expected to average between 0.2 and 1 percent this month. This means inflation may slow to a new record low this month, although it’s just as likely to rise from last month’s print of 0.6 percent.

Lower inflation would be a result of a cut in power rates and a modest decline in rice prices, Tetangco said. The recent weakening of the peso, which makes imported goods more expensive, could offset these downward pressures.

As the year nears its end, Tetangco said consumer prices might start to rise at a faster pace as a result of a longer-than-expected period of drier weather due to the El Niño phenomenon. Latest government forecasts showed El Niño might last well into 2016.

The BSP’s main goal is to protect consumers’ purchasing power by keeping prices stable. At its meeting last week, the BSP’s policymaking Monetary Board kept benchmark interest rates stable despite low inflation.

For all of this year, the BSP expected inflation to average below the full-year target of 2 to 4 percent.

Keeping rates at current levels, instead of implementing a cut in response to low inflation, can help combat rising prices. Higher rates can also attract yield-hungry investors into the country, offsetting capital outflows that the US Fed’s own planned rate increase may cause.

Moves by the central bank also have effects on economic activity since monetary policy helps control the amount of money that businesses and consumers can spend. For 2015, the BSP wants to keep inflation within a range of 2 to 4 percent.

Benchmark overnight borrowing and lending rates set by the BSP currently stand at 4 and 6 percent, respectively. Both are just half a percentage point above their respective record lows.

Inflation fell sharply in May to its weakest in 20 years due to cheap petroleum and stable food supply.