August inflation may dive to 1% zone given cheaper fuel, rice

The central bank expects the inflation rate to have dipped even further in August, providing policy makers with fresh impetus to reduce borrowing costs and 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 this month to settle within the 1.3-2.1 percent range—substantially lower than the two-year low of 2.4 percent recorded in July.

“Lower domestic prices for gasoline, diesel and kerosene, the continued decline in rice prices as well as the downward adjustment in electricity rates dampened inflation pressures during the month,” the central bank’s economists said.

They added, however, that the elements that would help lower inflation for the month “could be partly offset by the recent depreciation of the peso and higher prices of selected food items.”

Earlier this week, BSP Governor Benjamin Diokno promised at least one more 25-basis point reduction in the central bank’s key overnight borrowing rate, which determined the level of interest rates charged across the economy.

He said the timing of the rate cut would be determined by the data that the policy-making Monetary Board would receive in the coming weeks. Also included in the central bank’s arsenal of tools to help boost economic growth is the reserve requirement ratio that banks are mandated to keep.

Presently standing at 16 percent after a recent 200-basis point reduction, Diokno has vowed to reduce this to single-digit levels before the end of his term in 2023, explaining that the large amount of cash that is kept unproductive because of this policy could be better used to stimulate the economy.

“Moving forward, the BSP will remain watchful of economic and financial developments that could affect the inflation environment in line with its commitment to price stability conducive to long-term economic growth,” the central bank’s economists said.

In July, the government reported that stable food prices, especially declining retail prices of rice, further eased inflation to 2.4 percent. This increase in prices of basic commodities was the slowest in two years, matching the rate posted in July 2017. July’s headline inflation rate was also the lowest recorded since the 2.2 percent in December 2016.

The Philippine Statistics Authority is scheduled to announce the August inflation rate on Sept. 5.