PH inflation to remain low despite Oct. uptick — BSP

MANILA, Philippines — The pace of price increases in the Philippine economy will likely stay muted over the short term due to weak demand both locally and abroad due to the lingering economic effects of the coronavirus pandemic, according to the central bank.

Bangko Sentral ng Pilipinas Governor Benjamin Diokno gave this assessment to reporters on Thursday after the latest government data showed a slight uptick in the October inflation rate to 2.5 percent from the previous month’s 2.3 percent.

“The October 2020 inflation was within the BSP’s forecast range of 1.9–2.7 percent,” the central bank chief said. “The latest inflation outturn is consistent with the BSP’s prevailing assessment of favorable inflation dynamics over the policy horizon.”

“The balance of risks continues to lean toward the downside due largely to the impact on domestic and global economic activity of possible deeper economic disruptions caused by the pandemic,” Diokno explained.

The resulting year-to-date average inflation rate of 2.5 percent remained within the government’s target range of 3 percent, plus or minus 1 percentage point for the year.

By contrast, core inflation — which excludes selected volatile food and energy items to measure underlying price pressures — eased to 3 percent year-on-year in October from 3.2 percent in September.

The government said higher headline inflation was traced mainly to faster price increases for selected food items. Meat inflation went up as pork prices increased due to some tightness in supply brought about by the African Swine Fever. At the same time, fish inflation also increased as adverse weather conditions limited the supply of fish.

Given these developments, Diokno said that the Monetary Board will consider the latest inflation outturn together with the upcoming release of the third quarter gross domestic product data in its assessment of the outlook for inflation and economic activity for the group’s interest rate setting meeting on Nov. 19.

“The BSP stands ready to deploy all available measures in its toolkit in fulfillment of its policy mandate as it continues to assess the impact of the global health crisis on the domestic economy,” he said.

ING Bank Manila senior economist Nicholas Mapa pointed to Diokno’s earlier statement that he will likely keep policy rates untouched over the course of the next two quarters with real policy rates now negative at -0.25 percent, and after rolling out a series of aggressive rate cuts earlier this year.

“We forecast a [rate cut] pause from BSP well into 2021,” he said. “We expect inflation to settle at 2.4 percent for the year as anemic domestic demand to keep a lid on price gains with BSP content with providing liquidity support via its bond purchase program to help stimulate the recovery.

/MUF