Thanks to more affordable rice in the local market, the central bank expects the inflation rate to have dipped even further in September, buttressing policy makers’ recent decisions of reducing borrowing costs to help pump prime the country’s moderating economic growth.
In a statement, the Bangko Sentral ng Pilipinas (BSP) said its economists saw the pace of increases in consumer prices last month to have settled within the 0.6-1.4 percent range, significantly lower than the near-three year low of 1.7 percent recorded in August.
Despite this, the central bank’s economists were less sanguine in their assessment of the trend in consumer prices, noting the threats to inflation during the period.
“The continued decline in rice prices and the downward adjustment in electricity rates could be offset by the recent uptick in fuel prices as well as higher prices of selected food items due to weather disturbances during the month,” the BSP’s Department of Economic Research said.
The improved price prognosis came a few days after the central bank lowered its inflation forecast for the year another notch which, in turn, provided fresh impetus for the Monetary Board’s twin decisions last week to cut its key interest rate by 25 basis points and reduce banks’ reserve requirements by a full percentage —both meant to increase the amount of cash circulating in the local financial system.
“Based on Bangko Sentral ng Pilipinas’ latest projection, inflation is expected to average at 2.5 percent for 2019,” BSP Governor Benjamin Diokno said in a note to reporters. “[This is] lower relative to the previous forecast of 2.6 percent as of Aug. 8, 2019.”
The revised forecast is also substantially lower than the government’s official target range for the year of 3 percent, plus or minus 1 percent.
The central bank chief also committed to reduce banks’ reserve requirements to single digits from the current level of 16 percent before the end of his term in 2023.
The government will release the September data on Oct. 4, Friday.
Twelve of 13 economists polled by the Inquirer also projected a lower rate of increase in prices of basic commodities in September.
Thatchinamoorthy Krshnan of Oxford Economics gave the lowest forecast at 0.9-percent headline inflation, which he attributed to “strong base effects from food inflation.”
Four economists—Ateneo de Manila University’s Alvin P. Ang, Capital Economics’ Alex Holmes, Rizal Commercial Banking Corp.’s Michael Ricafort and Security Bank’s Robert Dan J. Roces—projected 1 percent year-on-year.
“Even if there are observed increases in oil prices, these are compensated by lower electricity rates. Rising chicken prices are offset by falling pork prices [due to African swine fever]. Also, we are coming from a high base [in September] last year [of 6.7 percent],” Ang said.
ANZ Research’s Mustafa Arif, ING Bank Manila’s Nicholas Antonio T. Mapa and Nomura’s Euben Paracuelles pegged September inflation at 1.1 percent.
HSBC’s Noelan Arbis and University of Asia and the Pacific’s Victor A. Abola projected 1.3 percent, with the latter noting only “minor increases in food and other items” during the month.
BDO Unibank Inc. chief market strategist Jonathan L. Ravelas and University of the Philippines-Los Baños College of Economics and Management Dean Agham C. Cuevas also see slower September inflation at 1.4 percent and 1.5 percent, respectively, even as Katrina Ell of Moody’s Analytics gave the highest forecast of 1.9 percent year-on-year “on the back of higher global oil prices flowing through to the consumer.”