November inflation seen muted as cheap gas offsets weak peso

The central bank expects prices of goods and services to have remained subdued in November despite the weakness of the local currency which, analysts feared, could have triggered a fresh round of inflation.

In a statement, Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said the decline in the value of the peso —which has the effect of raising prices because of the resulting decline in the currency’s purchasing power—would be counteracted by cheaper gasoline and diesel.

“The BSP forecast suggests that November inflation could settle within the 1.6-2.4 percent range,” Tetangco said. “Lower petroleum prices and the slight decline in rice prices along with the downward adjustment in power rates could be partly offset by higher liquefied petroleum gas prices and weaker domestic currency during the month.”

The inflation rate—the pace at which the prices of basic goods and services in the domestic economy rise or fall— stood at 2.3 percent in October 2016, the same rate that was recorded in the previous month. These rates were also within the central bank’s 1.9-2.7 percent forecasts.

Last week, Tetangco said inflation would likely fall below the 2-4 percent target range for the whole of this year before settling within target in the next two years. As of the first 10 months of 2016, the inflation rate averaged 1.6 percent.

Analysts and bankers believed this muted price environment was unlikely to force BSP to raise interest rates despite the expectations of such due to indications that the central banks of developed economies were poised to tighten their own monetary policies.

“The inflation environment remains manageable,” the BSP chief said last week.