BSP: Inflation likely hit bottom in Oct; slight uptick seen

The country’s inflation rate —which has been on a downtrend for almost the entire year—likely bottomed out at 0.8 percent in October, and will henceforth see a slight uptick going into the holiday season, the central bank said on Tuesday.

More importantly, however, the Bangko Sentral ng Pilipinas predicted that the pace of increases in consumer prices would likely remain muted over the medium term, save for possible short term spikes caused by volatility in international crude oil markets.

“The latest inflation outturn is consistent with the BSP’s prevailing assessment that inflation has likely bottomed out in October and could start to pick up slightly in the remaining months of 2019 as base effects start to dissipate,” the Bangko Sentral ng Pilipinas said after the October inflation announcement.
In a statement, the BSP said it continued to expect average inflation to firmly settle within the target range of 3 percent, plus or minus 1 percentage point for 2019-2021.

The monetary regulator noted that global crude oil prices had started to stabilize following recent volatility caused by geopolitical tensions in the Middle East, but stressed that deepening trade tensions between China and the US along with other countries in the region have raised global economic uncertainty, “which pose a downside risk to the inflation outlook.”

The BSP’s assessment that inflation had reached bottom was echoed by private sector economists who noted that the consumer price index had “nowhere to go but up” henceforth.

“With the base effects from the peak of 2018 fading quickly, we expect inflation to revert to target as early as December,” ING Bank Manila senior economist Nicholas Mapa said in a note to the press.

He noted that, after working quickly to reverse the aggressive tightening of 2018, BSP Governor Benjamin Diokno is expected to resume easing monetary policy in 2020 to help give the domestic economy an added boost amidst the projected global slowdown.

“With inflation forecasted to remain within target even after base effects wash out, the BSP will continue to work to provide an environment conducive for economic growth for as long as the price objective is in hand,” Mapa predicted.

ING sees the inflation rate to settle at 3.1 percent in 2020, paving the way for the BSP to cut policy rates by another 50 basis points, with the first move likely in the first quarter of 2020.

The BSP said that, going forward, it would “continue to keep a close watch over latest economic developments here and abroad to ensure that the monetary policy stance remains consistent with the BSP’s price stability objective.”