Inflation lowest in 16 months

Inflation eased to a 16-month low of 3 percent year-on-year in April mainly on slower increases in prices of food and beverages, the government reported Tuesday.

The latest Philippine Statistics Authority (PSA) data showed that headline inflation last month was the lowest since the 2.9 percent posted in December 2017.

As of end-April, the rate of increase in prices of basic commodities averaged 3.6 percent, within the government’s 3-4 percent target range for the entire year.

The PSA said the annual increase in the heavily weighted food and nonalcoholic beverages index slowed down to 3 percent from 3.4 percent a month ago and 5.9 percent a year ago.

The country’s inflation rate will likely continue its downtrend over the next few months and stay within the government’s target range until next year, the central bank said after the government announced that the pace of price increases in April slowed further to 3 percent.

At the same time, however, Bangko Sentral ng Pilipinas Governor Benjamin Diokno warned that domestic consumer prices could still spike because of rising crude oil prices in the international market and the effects of the ongoing El Niño dry spell on local agricultural output.

Balancing this are predictions of a weakening global economic environment, which could pose “downside risks” to inflation, he said.

“Against these upside and downside risks, the BSP continues to keep a close watch over price developments in the country,” Diokno said, noting that the relevant data would be weighed carefully by the Monetary Board when it convenes to decide on the direction of local interest rates tomorrow, May 9.

The central bank expects that inflation will settle within the range of 2-4 percent for both 2019 and 2020—a target that has been supported by recent data—after last year’s fastest pace of increases in nine years.

The BSP chief earlier acknowledged that banks had been complaining to him of tight liquidity in the financial markets—an offshoot of the 175-basis point increase in interest rates last year to fight off inflation — but added that some central bank officials remained unconvinced that monetary policy should be eased at this point.

The April inflation data was welcomed by the private financial sector, which continues to advocate for lower interest rates to encourage loan growth that, in turn, is needed to drive Philippine economic growth.

“With the inflation objective in hand and growth seen to take a hit in the first half, it would be about time for BSP to ease off the brakes from ‘crisis mode’ and finally nudge on the accelerator to zoom to faster growth,” ING Bank Manila’s senior economist Nicholas Mapa said in statement.

For Socioeconomic Planning Secretary Ernesto M. Pernia, the recent inflation reading validated government efforts toward stabilizing inflation so that the country’s buoyant economic growth, along with key reforms, remained unimpeded.

In the case of rice, easing prices were attributed by Pernia to stable supply in the country, with more imports expected to arrive in the country as the Rice Liberalization Act took effect.

With rice tariffication in full swing, prices of the Filipino staple food are expected to be cheaper by up to P7 a kilo.

But Pernia, who heads the state planning agency National Economic and Development Authority (Neda), warned of possible prices increases because of the prolonged dry spell due to El Niño, pending utility rate hike petitions and volatile international oil prices.