INFLATION in May decelerated to a four-month low of 3.1 percent, from 3.4 percent in April, but much faster compared with 1.6 percent a year earlier, data released by the Philippine Statistics Authority (PSA) Tuesday showed.
It was the slowest since January 2017, when inflation registered at 2.7 percent.
The statistics office cited lower prices of food, beverage and tobacco.
Slower yearly increases were posted in the indices of the following commodity groups:
Food and Non-Alcoholic Beverages (3.8%)
Alcoholic Beverages and Tobacco (6.1%)
Clothing and Footwear (2.2%)
Furnishing, Household Equipment and Routine Maintenance of the House (2.3%)
Communication (0.2%), and
Recreation and Culture (1.4%)
“The index for restaurant and miscellaneous goods and services however, moved up at a faster pace of 1.6 percent while the indices for housing, water, electricity, gas and other fuels and education retained their previous month’s rates of 3.6 percent and 1.8 percent, respectively,” the PSA noted.
In the five months to May, headline inflation settled at 3.1 percent and core inflation at 2.8 percent.
The Department of Finance estimated that inflation would settle at 3.2 percent last month, and the Bangko Sentral ng Pilipinas gave a range of 2.9 percent to 3.7 percent. Analysts polled by The Manila Times placed the May inflation between 3.1 percent and 3.5 percent.
Core inflation was also slower last month. “Excluding selected food and energy items, core inflation likewise eased to 2.9 percent in May 2017. It was pegged at 3.0 percent in the previous month and 1.5 percent in May 2016,” the PSA said.
The latest inflation print confirms the central bank view of manageable inflation for the year, but analysts have different views on how inflation would impact on the central bank’s policy stance.
“The inflation print further supports our view of manageable inflation that is expected to fall within the target range for this year and next,” outgoing BSP Governor Amando Tetangco Jr. told reporters in a text message.
“The BSP will continue to monitor developments here and overseas that can potentially influence future inflation and consider these in our next policy meeting,” he added. The policy-setting Monetary Board is scheduled to meet on June 22.
The central bank has kept the policy rate unchanged since lowering the interest rate on overnight borrowing to 3 percent from 4 percent in the run-up to adopting an interest rate corridor system on June 3, 2016. The rate for overnight lending was kept steady at 3.5 percent and the deposit facilities at 2.5 percent, while the reserve requirement ratio was left unchanged at 20 percent.
Because high base effect has influenced the food component of the Consumer Price Index in May, ING Bank said this would be a source of disinflation for the year and that oil-price driven increases in utilities and transport likely peaked last month.
“We consider our 3.4 percent inflation forecast for 2017 subject to downside risk. With inflation well-behaved, we think the prospect of the conflict in the south weighing on growth will lead the BSP to soften its stance,” said ING Bank chief economist Tim Condon.
Such developments have prompted ING Bank Manila to revise its forecast of two BSP rate hikes this year to one in the fourth quarter.
In a separate statement, the National Economic and Development Authority (NEDA) noted slower price adjustments in jam, fish, sugar, honey, chocolate, vegetables, confectionery and oils and fats helped eased the food and non-alcoholic beverages subgroup to 3.8 percent from 4.2 percent in April.
Crops in northern Philippines were resilient enough to withstand unfavorable weather and frost earlier this year, it added.
Inflation probably went past its peak when it slowed down in May, according to London-based research consultancy firm Capital Economics.
“The main factor behind the drop last month was a decline in fuel and electricity inflation, which fell to 8 percent from 8.5 percent in April. Looking ahead, we think fuel inflation has further to fall as the low base caused by last year’s slump in oil prices continues to drop out of the annual comparison,” Capital Economic’s economist Gareth Leather said.
He expects the central bank will now be unhurried to tweak policy rates. “Unlike the consensus, which is anticipating two 25 basis point rate hikes this year, we expect rates to remain on hold for the rest of this year,” he said.
However, the NEDA said other food commodities like fruits, meat and rice recorded faster price increases last month. Rice inflation accelerated further to 2.4 percent. “These trends bear watching, given the significant impact of food prices on the poor,” said Socioeconomic Planning Secretary Ernesto Pernia.
“The amendment of domestic laws to reflect the expiry of the WTO [World Trade Organization] waiver on rice quotas should also be pursued,” he added.
Australia’s ANZ Research said inflation expectations are still likely to rise despite modifications in the proposed tax reform package. “Thus, we still expect the Bangko Sentral ng Pilipinas (BSP) to start raising its policy rate by third-quarter 2017,” said ANZ Research economist Eugenia Victorino.
Meanwhile, non-food inflation also slowed to 2.5 percent in May 2017 from 2.7 percent in April, driven by slower price adjustments in health, transport, furnishing, communication, household equipment, clothing and footwear, and recreation and culture, NEDA noted.
There were also slower year-on-year increases in domestic fuel prices during the period, with slower inflation in diesel, kerosene, unleaded gasoline and liquefied petroleum gas, it said.
The country’s overall economic outlook remains positive as growth prospects for the global economy have improved and the recovery of international trade should provide ample supply of commodities to support domestic production, Pernia noted.
On the domestic front, neutral weather conditions are likely to prevail over potential recurrences of El Niño or La Niña, based on the latest outlook of Philippine Atmospheric, Geophysical and Astronomical Services Administration and the International Research Institute for Climate and Society.
This could lead to higher agricultural output, especially in palay and corn, Pernia said.