BSP declares victory over inflation as downtrend is confirmed

The central bank on Friday declared victory in its fight against rising prices after the government announced that the consumer price index for December 2018 fell to 5.1 percent — lower than the expectations of even the most optimistic economists.

In a press statement, the Bangko Sentral ng Pilipinas said the latest figure confirms its assessment that the inflation target for the next two years will be achieved.

“The within-target inflation outlook over the policy horizon largely reflects the estimated impact of the rice tariffication law, lower global oil prices, and latest monetary policy adjustments by the BSP,” the central bank said.

The growth of consumer prices eased for the second straight month in December, coming in at its lowest level since May 2018. The central bank raised interest rates by a total of 175 basis points last year in an effort to stamp out the second round effects that were being prompted by the spike in rice and petroleum prices, accentuated by the first round of tax hikes enacted by the Duterte administration.

Despite its recent success in taming inflation, the central bank said it will continue “to keep a close watch over price developments” and will weigh all relevant information” at its next monetary policy meeting on Feb. 7, 2019 “to ensure that the monetary policy stance remains consistent with the BSP’s primary mandate of price stability.”

In a separate statement, BSP Deputy Governor Diwa Guinigundo pointed out that the uptick in core inflation recorded in November was an “aberration brought about by one single factor of higher transport cost due to adjustment in transport fare.”

“But for December, as expected following the non convergence of various measures of core inflation, the official core inflation actually eased to 4.7 percent suggesting that demand pressures have not significantly built up,” he said.

He pointed to more encouraging data since month on month inflation for December 2018 stood at -0.6 percent while, excluding seasonality adjustments, the month-on-month inflation rate declined -0.4 percent.

“Those are negative inflation rates that should tell us that indeed the supply-driven inflation process we saw in 2018 was not to be persistent and therefore short lived,” the central bank deputy chief said. “This is also true of the impact of the tax reform package whose annual impact was less than 1 percentage point and diminishing.”

Meanwhile, ING Bank senior economist Nicholas Mapa said that, with inflation trending back to the BSP’s target of 2-4 percent, the case for the central bank to reverse its stance as early as second quarter of the year has gained considerably.

“On top of BSP’s widely-anticipated 200-basis point cut to reserve requirements scheduled for the year, the BSP will likely slash borrowing costs as early as the May 9 meeting to help bolster slowing growth momentum with its price stability mandate safeguarded,” he said.

Meanwhile, the central bank announced on Friday that 60-year old BSP Governor Nestor Espenilla Jr. will be on leave from January 4 to 21 to seek treatment overseas for his tongue cancer, which he had been fighting since late 2017.

In his stead, Guinigundo and Deputy Governor Cyd Tuaño-Amador would take turns serving as BSP officers-in-charge. /ee