Inflation hits 2-yr low; BSP seen to cut rates

Stable food prices, especially declining retail prices of rice, further eased inflation to a two-year low of 2.4 percent in July, the government reported Tuesday.

The increase in prices of basic commodities last month matched the rate posted in July 2017. Last month’s headline inflation rate was also the lowest recorded since the 2.2 percent in December 2016.

“The main driver in the downward trend of inflation in July was food and nonalcoholic beverages,” National Statistician Claire Dennis S. Mapa told a press conference.

In the case of rice, the Filipino staple registered a third straight month of declining prices—down 2.9 percent year-on-year in July, 1.7 percent in June and 0.7 percent in May, he said, noting that the last time that rice prices declined year-on-year was in June 2016.

As such, market watchers are all but certain that the Bangko Sentral ng Pilipinas will take advantage of the stable price environment to further cut interest rates tomorrow and give the local economy a growth boost.

In a statement, the central bank said the July 2019 rate of price increases “is consistent with the BSP’s prevailing assessment that inflation will continue to decelerate in the third quarter before firmly settling within the target range of 3 percent, plus or minus 1 percentage point for 2019 and 2020.”

With its policy-making Monetary Board set to decide on interest rates on Thursday, the central bank said that ample domestic food supply conditions have supported the continued easing of price pressures.

The Philippine Statistics Authority’s Mapa said that rice prices last year were “really high” such that they dropped during the past three months.

The government had also attributed the dip in prices to the implementation of the Rice Tariffication Law since March, which allowed easier entry of cheaper imports to slash domestic rice prices.

Also, Mapa pointed to a year-on-year decline in prices of corn, sugar, jam, honey, chocolate and confectionery, while price increases eased for oils and fats, vegetables and other food products that month.

Besides food, Mapa said the other contributors to July’s lower inflation included slower year-on-year increases in prices of firewood, charcoal and jeepney fare, while prices of domestic air fare, petroleum and fuels for personal transport equipment, electricity and LPG declined that month.

For his part, ING Bank Manila’s senior economist Nicholas Mapa said the latest data provided evidence of a continued trend of slowing inflation in the Philippines.

“With the US Federal Reserve cutting rates by 25 basis points last Wednesday, it is widely expected by the market that the Philippine central bank will [also] be cutting rates this Thursday,” he said.

BSP Governor Benjamin Diokno earlier told Bloomberg News that he saw up to 50 basis pints worth of rate cuts for the balance of 2019.

“We welcome this decelerating trend in prices but we remain on guard against possible upside risks such as adverse weather conditions, possible entry of the African swine fever and uncertainty in the global oil market, among others,” Socioeconomic Planning Secretary Ernesto M. Pernia said in a statement.

“Government agencies such as the Department of Agriculture, the Department of Trade and Industry and the National Food Authority should ensure sufficient supply of basic food commodities in view of the expected tropical cyclones that will enter the Philippine area of responsibility,” added Pernia, who heads the state planning agency National Economic and Development Authority.