Inflation eases to 1.8%, below forecast

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BSP: no need to tweak policy

Headline inflation decelerated in August from the previous month, bringing the year-to-date average below the central bank’s target range and ruling out any need for the Bangko Sentral ng Pilipinas (BSP) to tweak monetary policy.

Data from the Philippine Statistics Authority (PSA) on Tuesday showed inflation eased to 1.8 percent in August from July’s 1.9 percent, although it remained above the 0.6 percent rate recorded in the comparative year-earlier period.

Earlier, the BSP said inflation August likely hit a range of 1.6 percent to 2.4 percent, while the DOF estimated a 2-percent rate. The DOF did not elaborate on why the actual figure stood below its forecast.


The August rate brought the year-to-date inflation average to 1.5 percent in the first eight months of 2016, or below the 2 percent to 4 percent target range of the central bank.

Core inflation, however, accelerated to 2 percent from the 1.9 percent posted in July and 1.6 percent in August 2015.

“Slowdowns in the annual increases were noted in the indices of food and non-alcoholic beverages and recreation and culture,” the PSA stated.

The National Economic and Development Authority (NEDA) said the relatively low and manageable inflation environment during the first eight months of 2016 would continue for the rest of the year as upside risks are considered as benign.

“We are thus expecting full-year inflation to be close to the lower end of government’s target of 2 percent to 4 percent,” Socioeconomic Planning Secretary Ernesto Pernia said in a statement.

A private bank analyst said the risk of BSP missing its inflation target for a second straight year is now imminent, given a year-to-date inflation at 1.5 percent.

“Despite this, we won’t see any move from the BSP,” said Nicholas Antonio Mapa, associate economist at the Bank of the Philippine Islands (BPI), given that the economy grew by 6.9 percent in the first-half of the year.

No need to change policy stance
BSP Governor Amando Tetangco Jr. said the August rate is within the central bank’s forecast range of 1.6 percent to 2.4 percent, and is consistent with its view that inflation remains manageable and will move to within forecast by 2017 to 2018.

“There, therefore, appears to be no strong need to change stance of policy,” Tetangco said in a text message to reporters.

Nevertheless, the BSP chief said monetary authorities are mindful of possible weather-related supply disruptions as well as financial market volatilities from investment rebalancing and “will make adjustments as needed.”

Slower food inflation
Food inflation eased to 2.5 percent in August 2016 from 2.8 percent in July on slower price adjustments of meat, vegetables and corn, which tempered higher prices of rice, fruits, sugar, and non-alcoholic beverages, according to NEDA

“Food inflation will stay stable, given ample supply of palay and corn, which could keep upward price pressures at bay. Moreover, the plan to import more rice through next year will add to the country’s buffer stock and ensure that overall food prices remain stable,” Pernia, who is also the NEDA director general, said.

Rice inflation slightly increased to 0.5 percent in August from zero in the previous month.

This could be attributed to the decline in rice production and low levels of stock in the country because of El Niño,
Typhoon Nona during the fourth quarter of 2015, and the northeast monsoon rains in January 2016, NEDA said.

The non-food group registered a higher inflation of 1.1 percent from 0.9 percent, driven by stronger price pressures in housing, water, electricity, gas and other fuels, transport, furnishings, household equipment, clothing and footwear, health, as well as restaurants and other goods and services

However, NEDA said lower electricity charges last month was negated by higher global oil prices due to a pickup in global oil consumption and a slowdown in crude oil production.

On the domestic front, Pernia urged the government to hasten preparations for La Niña, which may begin developing in the fourth quarter of the year.

“There is also a need to ensure that prices of utilities such as electricity and water are stable. Existing petitions for upward adjustment in power prices should be reviewed comprehensively as it remains an upside risk to inflation rates,” he added.

Meanwhile, BPI’s Mapa lauded the remarkable resilience of the food subsector despite the El Niño drought and the onset of the wet months of La Niña.

He suggested that the government should continue to import as much rice and other food stuff as it can to ensure ample supply of this basket-heavy index.

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