… But milder inflation may be ‘transitory’

Consumer price growth may heat up again after cooling down at the start of the fourth quarter, an analyst said, citing high inflation expectations despite an ultra-tight monetary policy as the government struggles to tackle supply-side price pressures.

Leonardo Lanzona, economist at Ateneo de Manila University, said the softer inflation seen in October may be “transitory” as persistent supply problems continue to “elevate” inflation expectations.

“I think that these prices have somehow moderated inflation in the last few months due to unexpectedly high rice harvest in the last few months. However, this can be transitory in nature,” Lanzona said in an interview.

Inflation, as measured by the Consumer Price Index (CPI), cooled for the first time in three months to 4.9 percent year-on-year in October, from 6.1 percent in September, government data showed.

Softer food inflation

Figures showed the October CPI was mainly pulled down by softer food inflation, which moderated to 7 percent from 9.7 percent in the previous month.

Broken down, the onset of harvest season and arrival of imported supply tempered rice price inflation to 13.2 percent in October, from the 14-year high of 17.9 percent back in September.

The milder price growth in October—coupled with the forecast-beating economic growth in the third quarter— convinced the Bangko Sentral ng Pilipinas (BSP) to leave its policy rate untouched at its November meeting following an off-cycle hike in October to manage inflation expectations.

BSP Governor Eli Remolona Jr. said the central bank will “remain hawkish for a while,” adding it may resume tightening “if the inflation rate doesn’t go down as projected.”

Despite the aggressive actions by the BSP, Lanzona said inflationary expectations “have remained elevated” which, if left unchecked, may create a dangerous cycle of high inflation as more workers demand for bigger wages. —IAN NICOLAS P. CIGARAL INQ