Oct inflation seen to have dropped further

THE RATE of consumer price increases may have slowed to another record low in October amid cheaper electricity and fuel costs, the central bank said yesterday.

Despite the possibility of slower inflation this month, pressure on the Bangko Sentral ng Pilipinas (BSP) to react with a cut in rates remains minimal.

“As long as it’s supply-side driven, they won’t act any time soon,” Bank of the Philippine Islands (BPI) economist Nicholas Mapa said in an interview.

For October, the BSP expects inflation to average between 0.1 and 0.9 percent, coming from September’s record low of 0.4 percent.

The BSP’s new forecast shows inflation may still be in the process of bottoming out, despite what base effects from last year might suggest. Last year, inflation peaked at 4.9 percent in July and August, which means base effects would have been strongest in the same months in 2015.

“The BSP will remain watchful of price developments to ensure its primary mandate of price stability conducive to balanced and sustainable economic growth is achieved,” Tetangco said in a statement.

The BSP’s main goal is to protect consumers’ purchasing power by keeping prices stable. This is done primary through adjustments in interest rates. The BSP also manages the amount of money circulating in the economy.

Monetary easing, or bringing down interest rates and allowing more cash to circulate, helps prop up demand to push prices up. Tightening, or hiking interest rates and restricting the money supply, stems consumer demand and keeps prices down.

The BSP has an inflation target range of 2 to 4 percent this year. BPI’s Mapa said chances of reaching this target were slim, given the recent deceleration of inflation.

Mapa said the BSP would likely take a longer-term view on policy. “They shifted the focus from the 2015 target to the medium term outlook of 2016. They’re looking at it more holistically. As long as inflation returns to the path, it should be OK,” he said.