Sept inflation picks up to 2.3%

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BSP reiterates: No need to change policy interest rate

Headline inflation accelerated to 2.3 percent in September from 1.8 percent in August, bringing the year-to-date average below the central bank’s target range and supporting the views of analysts and monetary authorities that there is no need to tweak policy rates for now.

The government’s economic planning body also said that despite the higher September rate, inflation for full-year 2016 is expected to be slightly lower than the official inflation target of 2 to 4 percent.

The rise in consumer prices in September far outpaced the 0.4 percent rate recorded in the same month of 2015, data from the Philippine Statistics Authority (PSA) on Wednesday showed.


The Bangko Sentral ng Pilipinas (BSP) had expected inflation for last month would be in the range of 1.6 percent to 2.4 percent.

Below alarming level

The September rate brought the year-to-date (9 months) inflation average to 1.6 percent, or below the 2 percent to 4 percent range targeted by the central bank for the period.

Core inflation also accelerated to 2.3 percent in September this year compared with 2 percent the previous month and 1.4 percent a year earlier.

“Higher annual increments were noted in the indices of food and non-alcoholic beverages; alcoholic beverages and tobacco; clothing and footwear; housing, water, electricity, gas, and other fuels; furnishing, household equipment and routine maintenance of the house; and transport,” the PSA said.

The National Economic and Development Authority (NEDA) said despite the higher September rate, full-year inflation for 2016 is expected to be slightly lower than the government’s inflation target of 2 to 4 percent.

Upside risk remains

“But international and domestic risks however, are tilted to the upside from a possible rally in oil prices, depreciation of the peso against the US dollar, and pending petitions for electricity rate increases,” NEDA Officer in Charge Rosemarie Edillon said in a statement.

A private bank analyst expects the BSP to maintain its key policy rate at its next Monetary Board meeting.

The “BSP is expected to stand pat at its next Monetary Board meeting as inflation remains subdued while domestic activity remains vibrant,” said Nicholas Antonio Mapa, associate economist at the Bank of the Philippine Islands (BPI).

Mapa added that the BSP will also look to wield the full weight of its interest rate corridor system to smooth out any volatility that may [occur]as the United States Federal Reserve looks to hike its rates by the end of the year.

Meanwhile, Standard Chartered Bank economist Asia, Chidu Narayanan said inflation may edge further in the near term, but staying near the lower end of the central bank’s target range in the next few months, which should not be a cause for concern.

“We expect the Bangko Sentral ng Pilipinas to maintain a neutral monetary policy stance for the rest of 2016 and maintain interest rates unchanged,” he said.

No need to change policy stance

BSP Governor Amando Tetangco Jr. said the September inflation rate outturn is consistent with the central bank’s expectation that inflation will slowly inch up toward the national government’s 2-percent to 4-percent target range over the policy horizon.

“This also confirms that at the moment there is no compelling reason to change settings on our policy rates,” Tetangco said in a text message to reporters.

Nevertheless, the BSP chief said monetary authorities “will continue to closely monitor developments, including financial market volatility and the impact of possible adjustments to the tax structure on consumption patterns and relative prices of assets, to see how these may be addressed by adjustment in any of our other policy tools, including macroprudential measures.”

Details of PSA report

In September, food inflation accelerated to 3.1 percent from 2.5 percent in the previous month because of the adverse effects of the series of tropical cyclones that devastated the country, the NEDA said.

“Rice prices will remain stable since the 250,000 MT [metric tons]of rice imported from Thailand and Vietnam are expected to arrive by the end of October,” NEDA’s Edillon said.

However, the risk of La Niña developing during the fourth quarter of 2016 is still looming over the country at 41 percent in September to November and 40 percent in October to December, according to the Philippine Atmospheric, Geophysical and Astronomical Services Administration.

“We must keep on strengthening the agricultural sector through a comprehensive agricultural development program that aims to increase the resiliency of the sector and create a balance in agricultural policy,” said Edillon, who is also NEDA deputy director general.

“This is a major component of the proposed Philippine Development Plan 2017-2022,” she added.

The NEDA also reported that non-food inflation increased to 1.5 percent from 1.1 percent the previous month because of the price increases in all major non-food items, such as housing, water, electricity, gas and other fuels and transport.

“However, inflation will remain low and stable for the rest of the year with the continuous expansion of the domestic economy, solid private household consumption and investment, buoyant business and consumer sentiment, and adequate credit and domestic liquidity,” said Edillon.

BPI’s Mapa said going forward, inflation should trend back into target by 2017 as price pressures continue to build from rising oil prices, food inflation and the possible effects of tax adjustments.

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