Inflation eases to 28-month low

Customers buy vegetables in Manila's farmers market in this file photo.. Inflation in February fell below 3 percent for the first time in more than two years on lower food and utility prices, the government said Tuesday, March 6, 2012. AFP PHOTO / JAY DIRECTO

Inflation fell below 3 percent for the first time in more than two years in February on lower food and utility prices, supporting a central bank move to trim borrowing costs last week and giving it room to keep rates at a record low to bolster demand.

The consumer price index rose 2.7 percent in February from a year earlier, the National Statistics Office announced Tuesday. This was the slowest annual rate since September 2009 and at the low end of the central bank’s forecast of 2.7 to 3.6 percent.

Annual inflation in Metro Manila eased to 2.3 percent in February from 3.5 percent in January. Inflation outside the National Capital Region similarly decelerated to 2.8 percent in February from 4 percent in January.

For January, the NSO revised the annual inflation rate to 3.9 percent from 4 percent.

The latest inflation data would allow the central bank “to continue a monetary policy stance that will be supportive of growth,” Bangko Sentral ng Pilipinas Governor Amando Tetangco said at a government economic briefing.

Earlier in a mobile text message to reporters Tetangco said, “Over the policy horizon, we expect inflation to be below the mid-point of our target range of 3 to 5 percent.”

“We will continue to monitor developments, particularly in the MENA [Middle East and North Africa] and their impact on volatilities in international prices, to see if there is any need to adjust our policy stance,” he said.

The consumer price index was flat from January on a month-on-month basis, compared with economists’ median forecast of 0.5 percent.

The Bangko Sentral cut its main policy rate by a quarter point to a record low of 4 percent last Thursday, underscoring its view that inflation would remain benign and that there was a need to keep prevent weak global demand from imperiling domestic growth. But risks from higher oil prices due to tensions over Iran’s disputed nuclear program will likely make the central bank think twice about further interest rate cuts, some economists said.

The Philippines imports nearly all of its crude oil needs and escalating geopolitical tension in the Middle East could push up power and transport costs.

The central bank, which uses an inflation-targeting model to set policy, has kept the 2012 and 2013 average inflation forecasts at 3.1 percent and 3.4 percent, respectively, both at the lower half of the 3 to 5 percent target range for the two years, in spite of oil price concerns.

Tetangco said its estimates showed that inflation for the year could still stay within the target of 3-5 percent even if Dubai crude surged to as high as $160 a barrel.

He said inflation would remain benign for the rest of the year, noting that there were factors pulling down the overall increase in consumer prices that, in effect, would offset the impact of rising oil cost.

The Dubai crude price, which is used as a benchmark in setting local pump prices, reached $120 a barrel in recent days. The Aquino administration assumed that oil prices would average between $90 and $110 this year when it drafted its various economic targets such as on inflation.

“Oil prices have started to go up, but our analysis showed that even inflation will still stay within target even if oil price hits $150 to $160 a barrel,” Tetangco said in Tuesday’s press conference.

He said the inflation target for the year might only be at risk of being breached if Dubai crude price exceeded $160 a barrel.

“We still see inflation for the year averaging below the mid-point [meaning, below 4 percent] of the official inflation target,” Tetangco said.—With a report from Reuters