Well-behaved consumer goods prices in September allowed the central monetary authority a level of confidence the country’s inflation will fall securely within the target for the year, enough to warrant a pause in its growth-boosting drive to push local output, measured as the gross domestic product (GDP), still higher or within the projected path this year.
On Wednesday the Philippine Statistics Authority (PSA) reported inflation having significantly slowed in September to only 4.4 percent, from 4.9 percent in July and August.
Compared against year-ago data, this represented an acceleration from 2.7 percent.
This also brought the nine-month inflation rate to 4.4 percent, higher than the 2.76 percent seen in the same period last year. While arguably at the higher end of the government’s 3-percent to 5-percent target, this was clearly within the target for the year.
“Inflation for September, at 4.4 percent, falls squarely within our forecast of 4.1 percent to 4.9 percent. This puts the year-to-date average at 4.4 percent, giving us more confidence that the 2014 full-year average will be within target,” Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. said in a text message to reporters on Wednesday.
Breathing room
The DBS Bank, in a note to clients, said lower inflation in September helped provide “breathing room” for the central bank to maneuver, when the policy-making Monetary Board did not have to craft tools or policies to contain the sources of price inflation over the policy horizon.
In total, the BSP already implemented two 1-percentage-point hikes in the banks’ deposit reserve requirement, two 25-basis-point hikes in the antiliquidity special deposit accounts (SDA) window and two 25-basis-point hikes in the country’s policy rates.
Economists at the Dutch financial services giant ING Group also said the September inflation number, which was softer than a month earlier, argue for a pause in monetary-policy adjustments.
In practical terms, this means domestic interest rates will remain where they are at the moment, as the monetary authorities look for added evidence that price pressures need to be contained via appropriate interest-rate adjustments.
For Hongkong and Shanghai Banking Corp. economist Trinh Nguyen, inflation will likely stay on a downward trajectory up until the opening months of 2015.
“We believe headline inflation peaked in August at 4.9 percent year-on-year. The deceleration of prices to 4.4 percent in September was expected and will be sustained in October, unless a strong negative supply shock occurs. We believe that CPI will fall to 3.8 [percent] to 4.1 percent by December, allowing the central bank to pause at the upcoming meeting,” Nguyen said.
Nicholas Mapa, associate economist at the Bank of the Philippine Islands (BPI), also said the BSP will pause at its last two meetings for the year and likely go ahead with a tightening in the first quarter next year.
“Tetangco knows the importance of keeping the powder dry for a bit longer to enhance the efficacy of his interest-rate hike salvo, to keep inflation within target in 2015 in a time of higher global interest rates,” Mapa said in an e-mailed response to the BusinessMirror.
He added that inflation should ease further toward the end of the year as the much-needed rice importation arrives just in time soon to help relieve the price pressure on the staple. “This, coupled with a favorable base effect, could tilt inflation on a downtrend toward December,” Mapa said.
The slower increase in prices in September gave the government more confidence that the 3 percent-to-5 percent inflation target for the year will no longer be breached.
“Notwithstanding upward pressures on prices, the general market inflation expectations remain well-anchored, as policies remain supportive of manageable inflation rate,” National Economic and Development Authority (Neda) Officer in Charge Emmanuel F. Esguerra said.
Data showed that in September, the country’s inflation rate slowed to 4.4 percent. This is higher than the 2.7 percent posted in September 2013 but was lower than the 4.9 percent posted in July and August.
On a month-on-month basis, inflation eased to 0.1 percent in September from its August level. This is slower than the monthly increase of 0.3 percent posted in August 2013.
The slower average increase in commodity prices was largely due to lower food, fuel and electricity costs in September.
Data showed that the food and non-alcoholic beverages index slowed to 7.4 percent in September; the housing, water, electricity, gas and other fuels index to 2.2 percent; and transport index to 0.7 percent.
The Philippine Statistics Authority (PSA) said the annual gain in the food alone index in the Philippines eased to 7.8 percent in September. Last month its annual rate was 8.7 percent and 2.5 percent in the same month a year ago.
“Slower annual increases were noticed in the indices of rice, corn and vegetables. Meanwhile, the other food groups recorded higher annual rates except the meat and oils and fats indices, which retained their corresponding last month’s annual growths,” the PSA said.
Further, Esguerra said Dubai crude oil’s international price also declined. This pulled down local petroleum prices in September 2014.
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