‘Oct inflation to prompt BSP freeze on rates’


    Headline inflation probably stayed below 1 percent last month, analysts polled by the Manila Times said, with policy rates unlikely to be adjusted even if the rise in consumer prices hits a fresh record low.

    Six analysts said October inflation may have settled within 0.2 to 0.6 percent as low utility rates and energy prices offset food price pressures. The range is narrower than that offered by the Bangko Sentral ng Pilipinas (BSP), which last week bared a 0.1 percent to 0.9 percent forecast.

    They were evenly divided as to direction, with three expecting inflation to have picked up a bit from September’s record low of 0.4 percent. The rest forecast a further drop, taking the line of the Finance department that has its own 0.3 percent outlook.

    Official October data will be released on Thursday by the Philippine Statistics Authority.

    Justino Calaycay Jr., analyst at Accord Capital Equities Corp., said inflation likely ranged from 0.4 percent to 0.6 percent, mainly due to lower power rates and relatively steady pump prices.

    “There may have been some upside pressures on food prices, given the damage to crops brought on by the recent typhoon, but this would probably be minimal. We didn’t see any significant movements in the prices of most basic commodities and services,” he said.

    Calaycay said the BSP “should be happy” if inflation steadies, or picks up even by just a bit, because the 12-month running average has been drawing a negative slope, signifying disinflation.

    The central bank would have elbow room to lower rates if it needs to spur the economy, he noted.

    “However, a growing concern is that, on the other hand, it (slowing inflation) may limit the regulators’ options when the US Fed finally decides to lift US rates. Theoretically, interest rates can be used to protect the currency [in the event of capital flight]but at the same time, given slower economic growth and a slowing inflation, the situation could deteriorate further,” Calaycay said.

    Bank of the Philippine Islands associate economist Nicholas Antonio Mapa and Security Bank Corp. economist Patrick Ella, meanwhile, both expect inflation to have slightly increased to 0.5 percent.

    “We looked at the movement in oil prices, utilities and most importantly food prices given its hefty weight in the CPI (consumer price index) basket,” Mapa said, adding that he does not see a change in the central bank’s policy stance unless it gives a very strong hint in the coming days.

    “Domestic demand is robust while inflation is supply driven, which are factors to stay the hand of the BSP,” he added.

    Jeff Ng, economist at Standard Chartered Bank, expects inflation to have eased to 0.3 percent, with energy inflation likely having dragged down the headline number as gasoline and diesel prices were cut in October.

    “Food prices were stable but we expect them to increase in the coming months. With last year’s high base effect likely to affect data in the coming months and no inflationary pressure on prices of most items in the CPI, we expect inflation to remain benign and below trend levels until year-end,” he said.

    Providing the lowest forecasts of 0.2 percent were Eugenia Victorino, Asean and Pacific economist at ANZ Research, and Metrobank Research analyst Mabellene Reynaldo.

    “Although vegetable prices have risen over the month, rice supply remains ample capping price gains in the food sub-index. Utility companies reported lower generation charges which likely led to sequential contraction in electricity prices,” Victorino said.

    Despite downward pressure on the headline figure, ANZ continues to believe the central bank will likely maintain its policy settings up through the first half of 2016.

    “Credit conditions remain supportive of growth. We expect BSP’s official transition into having an interest rate corridor by the second quarter of 2016 to limit its space to tweak its policy bias until then,” the ANZ economist said.

    Reynaldo, on the other hand, noted muted price growth in food items and a deeper contraction in oil prices.

    “We expect the policy rates to remain steady until year end,” the Metrobank analyst said.

    September’s 0.4 percent inflation result was an all-time low, falling from 0.6 percent in August. A year earlier, the rise in consumer prices was 4.4 percent.

    Central bank Governor Amando Tetangco Jr., in explaining the BSP’s 0.1 percent to 0.9 percent projection for October, said: “Transitory uptick in food prices in [typhoon]Lando-affected areas, higher LPG (liquefied petroleum gas) and diesel prices could be offset by downward adjustments in power rates and regular gasoline prices.”

    The BSP expects full-year inflation to average 1.6 percent this year, picking up to 2.6 percent in 2016 and 3 percent the year after.


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