By Bianca Cuaresma & Cai U. Ordinario
Inflation crept closer to zero in September, averaging still lower to 0.4 percent from 0.6 percent in August, and an event the nation’s economists attributed to more tempered price movements on food, power and imported oil.
This helped strengthen the neutral monetary-policy stance of the Bangko Sentral ng Pilipinas (BSP), one of whose most senior officials effectively ruled out on Tuesday any more interest-rate adjustments when the seven-man policy-making Monetary Board meets again to set the rate at which they borrow from or lend to bank five weeks from today.
In reaction to the Philippine Statistics Authority’s (PSA) announcement that September inflation fell still lower in September, BSP Deputy Governor for the Monetary Stability Sector Diwa C. Guinigundo said inflation could already have bottomed out and that a trend reversal may be expected in the fourth quarter.
The 0.4-percent inflation report was within forecast for September, ranging from 0.2 percent to 1 percent. This also represented a further decline from the 0.6-percent inflation reported in August and the seventh such reduction in a series.
“Based on our latest forecasts, we should see inflation bottoming out on account of the impact of El Niño and the weak peso,” Guinigundo told reporters on Tuesday.
The PSA attributed the record-low inflation to annual declines in the indices of housing, water, electricity, gas and other fuels and transport.
“With supply conditions remaining generally favorable and demand continuing to be manageable, we expect inflation to keep within our forecasts of 1.6 percent for 2015, 2.6 percent for 2016 and 3 percent for 2017,” Guinigundo said.
“On this basis, the Monetary Board’s recent decision to keep monetary policy steady remains appropriate. Any development in the US Fed and China should be addressed by our preemptive moves last year which gave us the monetary space today,” he added. As a result, the local currency, the peso, was little changed at 46.47 per dollar on Tuesday from the 46.48 on Monday on a volume of trade reaching $1.109 billion.
But no matter the record-low inflation, the National Economic and Development Authority (Neda) warned this development may prove short-lived given the upside pressure the El Niño weather disturbances have on food supply and prices.
Inflation in the January-to-September period averaged 1.6 percent, or below the government target of 2 percent to 4 percent this year.
“The government must ensure that food supply is sufficient by improving the level of inventories and efficiency of the distribution system,” Neda Director General and Socioeconomic Planning Secretary Arsenio M. Balisacan said.
“Continued monitoring of drought occurrence in agricultural areas is necessary to ensure timely policy actions, including importation of rice and other basic commodities to augment domestic supply,” he added.
The Neda director general added that expanding agriculture support structures from production areas to the demand centers will also further bring down the cost of transporting goods and services.
As the El Niño intensifies, Balisacan said the government may consider increasing the number of agricultural workers as potential beneficiaries in the Pantawid Pamilyang Pilipino Program to offset farm output losses.
He said the government must also ensure that access to finance in the agriculture and fisheries sectors remains unhampered.
“We expect the current low inflation environment exhibited in the first nine months of 2015 to persist throughout the rest of the year, more so as international oil prices continue to remain low and are not expected to increase significantly in the near term,” Balisacan said.
Food inflation continued to ease in September 2015 to 0.7 percent from 1.1 percent following slower price adjustments in majority of its sub-items such as breads and cereals, fish, fruits and rice.
The declining prices of regular milled rice due to sufficient supply partly supported the downward trend in overall food prices.