Headline inflation recorded its slowest pace in 17 months when the rate slipped further to 2.4 percent year-on-year in January from 2.7 percent in December, and from 4.2 percent a year earlier, official data showed on Thursday.
The January figure released by the Philippine Statistics Authority (PSA) came within the central bank’s forecast range of between 1.8 percent and 2.7 percent for the month, but slightly exceeded private analysts’ estimates of between 1.9 percent and 2.3 percent.
January marks the slowest pace in the rise in consumer prices since the 2.1 percent rate recorded in August 2013.
The PSA said the steady decline in the annual movement of the indices for housing, water, electricity, gas and other fuels and transport costs pushed down the inflation rate in January.
“The slowing down of the annual growth rates of other commodity groups, except in alcoholic beverages and tobacco, communication and education indices, also contributed to the downtrend,” it said.
Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said the January rate of 2.4 percent was largely influenced by the slowdown in the annual movements of utilities, gas and transport prices.
In a text message to reporters, Tetangco stressed that last month’s inflation rate bolsters the BSP view that the rise in prices will remain within target over its policy horizon.
The government has an inflation target range of 2 percent to 4 percent this year until 2018.
“We will continue to monitor developments particularly in international oil prices and their impact on financial market volatilities and inflation expectations to see if there is need to make adjustments to our policy levers,” he said.
Singaporean bank DBS said low crude oil prices have been weighing on headline inflation but warned that inflation may soon be pushed up by a recent uptick in oil prices.
“Given how responsive the CPI [consumer price index]inflation in the economy is to changes in oil prices, the recent uptick in global crude oil prices could mean that a slight recovery in headline inflation numbers may follow,” DBS said in its Daily Breakfast Spread research note.
Despite this, the bank said the average CPI inflation is still on course to meet the 2 percent to 4 percent official target set by the BSP for 2015.
UK-based investment bank Barclays said January inflation came in slightly higher than its 2.1 percent estimate, as well as the 2.3 percent consensus forecast. However, it noted that food prices remained stable amid cooling rice costs.
“We remain comfortable with our 2.3 percent average inflation forecast for 2015. We expect inflation to stay broadly within the BSP’s 2 percent to 4 percent target range this year, given the energy price falls and easing rice inflation,” the bank said in its Emerging Markets Research note.
Consumer prices in Metro Manila eased to 1.5 percent from 1.6 percent in December and from 2.7 percent in Jan 2014, according to the PSA data.
In areas outside Metro Manila, inflation continued to move slowly at 2.7 percent from 3 percent the preceding month and from the 4.6 percent recorded a year earlier.
Excluding selected food and energy items, core inflation eased to 2.2 percent in January from 2.3 percent in December and 3.2 percent in the corresponding period last year.
The National Economic and Development Authority (NEDA) said the slowdown in inflation during the first month of 2015 bodes well for consumption growth.
Socioeconomic Planning Secretary and NEDA Director General Arsenio Balisacan stressed there were no major shocks on the economic and weather fronts that could affect food supply considerably.
“The supply chain in other food products has normalized because of the lifting of the expanded truck ban in September 2014. So these may have also contributed to the continued easing of inflation,” he said.
Rice prices, which account for 38 percent of total food inflation, continued to ease year-on-year growth in Jan 2015.
“Although prices of rice are still elevated, the rate of increase was slower because of the more favorable supply conditions,” he said.
The NEDA chief mentioned that total rice stock inventory continues to register double-digit year-on-year growth as of Dec 2014, in contrast to the decline in inventory recorded prior to November of last year.
Balisacan added he is optimistic that the favorable outlook on the production of agricultural commodities will ease local price pressures further in the coming months.
He said the shift in the rice harvest period from Dec 2014 to Jan 2015 in some provinces is seen boosting production in the first quarter of 2015.
The National Food Authority’s plan to import an additional 600,000 tons of rice in the coming months to boost the country’s buffer stock for 2015 should also help, he said.
Balisacan traced the slowdown in January to the significant rollbacks in the domestic pump prices of unleaded gasoline, diesel, kerosene and liquefied petroleum gas (LPG) recorded during the month.
“The continuing decline in international oil prices is a positive development for the country, considering our import dependence on oil,” he said.
Balisacan added that electricity rates dropped in January due to lower generation charges, improved power plant availability and the lower cost of fuel.
Power rates down
Manila Electric Co. charges fell further by 17 percent year-on-year or by P0.219 per kilowatt hour in January, Balisacan said.
Overall, he stressed that policies remain supportive of a manageable rate of inflation.
“The expected monetary policy adjustments in the US and general concerns about the sustainability of growth in emerging economies, and the peso is expected to remain relatively stable due to the country’s strong external position, will contribute to stable domestic prices going forward,” he said.
He acknowledged, however, that the government is aware that risks to a manageable inflation rate remain.
“The lingering possibility of the El Niño occurrence in the first quarter of 2015 and power woes remain an overhanging concern and must be holistically addressed,” he said.