Cheaper fuels cap April inflation at 1.1%

Prices of goods and services in the country rose by 1.1 percent in April, similar to the inflation rate a month ago, but slower than the 2.2 percent posted a year ago, according to data released by the government.

As year-to-date inflation remained benign, cuts in the central bank’s key policy rates are seen happening before midyear, a Bank of the Philippine Islands (BPI) economist said.

But in a text message to reporters, Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. maintained that “right now, we still do not see any strong need to change policy settings.”

Tetangco nonetheless said the BSP was “also mindful of financial market volatility that could result from market reactions to advanced economies’ monetary policy” while monitoring movements in international commodity prices.

As for the inflation in April, Tetangco said the rate “continues to support our view that inflation should be manageable and likely inch to within target over the policy horizon.”

In a report Thursday, the Philippine Statistics Authority said annual headline inflation last month declined from 2.2 percent in April last year as prices of housing, water, electricity, gas and other fuels continued to drop year-on-year.

Increases in the prices of alcoholic beverages and tobacco, clothing and footwear, health products, recreation and culture services, as well as restaurant and miscellaneous goods and services nonetheless balanced the declining prices.

Year-to-date inflation stood at 1.1 percent, below the government’s 2-4 percent target range for 2016.

In a statement, Economic Planning Secretary Emmanuel F. Esguerra said stable inflation “supports favorable demand prospects and is broadly in line with the expectation of brisker operations during the election period and anticipated pick-up in the economic activity during the summer season.”

“Worth noting is the monthly downward trajectory of prices of rice, which was partly due to the timely arrival of additional rice imports. This ensured sufficient supply during the start of the year,” said Esguerra, who is also the Director General of the National Economic and Development Authority.

But Esguerra warned of upside risks to inflation in the coming months as global oil prices recover while the country is poised to experience a transition from a dry El Niño to a wet La Niña, which would impact on prices of agricultural commodities as well as utilities.

“In order for inflation to nudge right into the lower end of the target, inflation for the next eight months will need to average 2.5 percent. The 1.1-percent inflation print was below market consensus but we do expect a rebound in the coming months as oil prices recover, El Niño bites and as base effects kick in,” BPI associate economist Nicholas Antonio T. Mapa said in a note to clients.

“With inflation benign, some central banks surprising with dovish tones and BSP Governor Amando M. Tetangco Jr. committed to tightening his interest rate corridor (IRC) prior to [its] implementation, we do expect the BSP to enact its ‘one-time operational’ adjustment to its corridor by cutting both the [overnight lending or repurchase facility] from 6 percent to 4.5 percent and [overnight borrowing or reverse repurchase facility] from 4 percent to 3.5 percent,” Mapa added.

The Monetary Board, the BSP’s highest policy setting body, will meet on Thursday next week, while the IRC will be implemented before the end of the second quarter.