• ‘Inflation may have bottomed out at 0.4%’


    Headline inflation stayed at 0.4 percent in October, prompting the central bank to declare that the rise in consumer prices may have bottomed out after a run of record lows.

    Monetary authorities were unlikely to adjust interest rates during next week’s policy meeting given the latest data, analysts said.

    October’s 0.4 percent was the same as that posted in September, which was a new record low following August’s 0.6 percent, July’s 0.8 percent, June’s 1.2 percent and May’s 1.6 percent.

    A year earlier, inflation was at 4.3 percent.

    October’s result, traced to a continued easing in the prices of food, housing, utilities, gas and other fuels, was within the Bangko Sentral ng Pilipinas’ (BSP) outlook of 0.1 percent to 0.9 percent and also within the 0.2 percent to 0.6 percent range in a Manila Times poll of analysts.

    Core inflation, which excludes food and energy prices, posted a slight uptick to 1.5 percent from 1.4 percent in September, but was still lower than the 3.2 percent recorded a year earlier.

    Year-to-date, the rise in consumer prices averaged 1.4 percent, below the BSP’s target of 2 percent to 4 percent. Core inflation averaged 2 percent during the period.

    “[S]lowdowns were seen in the indices of food and non-alcoholic beverages; furnishing, household equipment and routine maintenance of the house; and recreation and culture. The index for housing, water, electricity, gas and other fuels continued to post annual decline,” the Philippine Statistics Authority said.

    Providing upward pressure were the indices for alcoholic beverages and tobacco; clothing and footwear; health; and transport.

    Inflation bottoming out
    “Our current runs show inflation is possibly bottoming out, and it will gradually move to within target range in 2016-2017,” central bank Governor Amando Tetangco Jr. said in a text message to reporters.

    While there seems to be room to ease policy, Tetangco said risks to the outlook remained such as the El Niño weather phenomenon and pending requests for utility rate hikes.

    “Domestic demand is steady and there doesn’t appear to be need for further monetary support . . . We need to balance these versus domestic liquidity conditions, especially as market anticipates Fed action towards yearend,” he added.

    Tetangco stressed that the BSP would make adjustments to policy if conditions warranted such.

    Easing unlikely
    Analysts said the central bank would stay on the sidelines throughout the rest of the year, with the policy-making Monetary Board likely to keep interest rates unchanged when it meets next week.

    “Even with low inflation and slower-than-expected [5.3 percent] first-half growth, BSP appears comfortable with its policy stance, emphasizing that growth and inflation risks stem largely from poor weather and the uncertain global backdrop,” said Rahul Bajoria, economist at UK-based investment bank Barclays.

    Barclays trimmed its 2015 inflation projection to 1.4 percent from 1.6 percent and also lowered its 2016 forecast to 2.4 percent from 2.7 percent.

    Bajoria said the new forecasts incorporated slower core inflation and also a more modest increase in energy costs in 2016, with oil prices likely to rise only gradually.

    “We believe the medium-term risks to inflation center on El Niño and its potential impact on agricultural prices,” he said.

    Nicholas Antonio Mapa, Bank of the Philippine Islands associate economist, also expects domestic monetary policy to remain unchanged for the balance of 2015.

    He said BSP comments suggested a rate cut sometime before the full implementation of the interest rate corridor (IRC) in the second quarter of 2016.

    “A cut, however, to the SDA (special deposit account) rate at a time that core inflation outpaces headline inflation would not be in-line with its price stability mandate,” he added.

    Upside risks
    The National Economic and Development Authority, meanwhile, said the current low inflation environment would continue for the rest of the year.

    “This will largely be due to favorable supply-side factors such as the availability of ample food supply and low international oil prices,” Socioeconomic Planning Secretary Arsenio Balisacan said in a statement.

    “Upside risks could come from the stronger and prolonged El Niño’s impact on food prices and also possible increase in utility rates given the pending petitions for power rate adjustments,” he added.

    Balisacan also stressed that drier weather conditions on account of the El Niño could adversely affect hydro-powered generation plants and raise the cost of electricity, particularly in Mindanao.

    “It is also important that the on-going power projects that are expected to be delivered between November 2015 and March 2016 will not be delayed,” he said.

    These power projects will ensure that inflationary pressures from power shortages is tempered, Balisacan said, stressing that policy improvements need to be sustained to enhance private sector commitment to undertake power projects.


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