Inflation seen bottoming out

INFLATION may have finally reached its bottom for the year as analysts project a slight acceleration in the rate of consumer price increases in October, marking the start of a trek up back to “normal” levels.

Still expected to be at a modest 0.5 percent, inflation in October would be faster than the record low of 0.4 percent recorded the month before. The Bangko Sentral ng Pilipinas (BSP) is seen resisting the temptation to bring down the cost of money amid warnings of possible price spikes in 2016.

“Statements from the BSP have been fairly consistent this year,” said Gundy Cahyadi, economist at Singapore’s DBS bank. “Despite the softer inflation outlook, a rate cut doesn’t look imminent for now.”

DBS, and local giants’ BDO and BPI see inflation at 0.5 percent in October. Last week, the BSP projected a range of 0.1 to 0.9 percent for the month.

The BSP’s main job is to protect consumers’ purchasing power by keeping prices stable. This is done through adjustments in interest rates and the management of the country’s money supply, both of which affect consumer demand.

For 2015, the BSP expects inflation to hit an average of 1.5 percent, lower than its target range of 2 to 4 percent. Amid the prospect of missing its projection for the first time in six years, the BSP seems content with leaving monetary policy settings steady.

“The BSP can probably keep monetary settings constant through yearend,” BPI lead economist Emilio Neri Jr. said in an interview.

Analysts were split on how the BSP was expected to react to the US Federal Reserve’s plan to hike rates likely before the end of 2015.

DBS’ Cahyadi said the Philippine central bank might opt for some measure of policy easing given the benign inflation outlook.

BPI’s Neri, for his part, said the BSP would be kept busy by preparations for its planned shift in the way monetary policymaking was conducted in the country.

“Monetary authorities [will] focus more on operationalizing the mechanisms of their term deposit facility and the interest rate corridor,” Neri said.