UPDATE 2: May inflation at 20-year low – NEDA

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(Updates with more details from NEDA, PSA and comment from private bank DBS)

Philippine headline inflation hit its slowest pace in 20 years in May at 1.6 percent, according to the latest figures announced Friday by the National Economic and Development Authority (NEDA).

The Bangko Sentral ng Pilipinas (BSP) earlier said May’s 1.6 percent rate was the slowest since 1998.

Using 2006 as the current base year, the NEDA said inflation in May covered the monthly inflation series from 1995 to May 2015.


The NEDA figures show the May rate touched the lower end of the central bank’s forecast range of between 1.6 percent and 2.4 percent, and stood below analysts’ consensus estimate of 2 percent, with the cost of housing, utilities, fuels and communications sustaining a downward trend.

Growth in consumer prices decelerated from 2.2 percent in April and 4.5 percent in May last year.

Core inflation (excluding food energy prices) at 2.2% in May Core inflation, which excludes volatile food and energy prices, fell to 2.2 percent in May from 2.5 percent in April, and from 3.1 percent recorded a year earlier, PSA data shows.

Core inflation from January to May averaged 2.5 percent.

Including those prices, headline inflation for the year-to-date averaged 2.2 percent.

The PSA said housing, water, electricity, gas and other fuels and communications prices continued to show annual declines in May.

Also contributing to the slowdown were lower annual increments in the indices of food and non-alcoholic beverages; alcoholic beverages and tobacco; clothing and footwear; and furnishing, household equipment and routine house maintenance.

Oil price remains a risk
The BSP reiterated that inflation expectations continued to be well anchored but pointed out a need to closely monitor risks that could impact consumer prices in the coming months.

“Inflation expectations continue to be well anchored, and growth is still sound,” BSP Governor Amando Tetangco Jr. said in a text message to reporters following the release of the official May inflation rate.

But Tetangco said the central bank remains watchful particularly of oil price movements, which have knock-on effects on domestic pump prices, transport and other utilities, and consumption in general, as well as the impact of a possibly prolonged El Nino dry spell on the food supply chain, he said.

“We will consider all these during our next policy meeting, to see if there is a need to adjust the stance of monetary policy,” Tetangco added.

Ample supply
The NEDA said ample supply of key food items, as well as lower electricity and fuel prices, were behind the easing of inflation in May to its lowest level in 20 years.

“Rice prices have normalized, as total rice stocks inventory grew by 16.5 percent year-on-year as of April 2015. With favorable weather conditions, the supply of fish has been steady and sufficient and the volume of in-season fruits in the market stable,” said NEDA Officer in Charge and Deputy Director General Rolando Tungpalan.

Inflation in the meat index was also curbed, following the Department of Trade and Industry’s imposition of lower suggested retail price, he said.

Non-food inflation moderated to 0.3 percent in May from 0.8 percent in April, resulting from a sustained decline in the prices of electricity, gas, and other fuels.

The slowdown in May inflation appears to be geographically broad-based as the price index in Metro Manila slid to 0.7 percent from 1.5 percent in April, and 3.8 percent in the year-earlier period.

Meanwhile, all regions except Region X (Northern Mindanao) registered slower year-on-year price increases, resulting in a tempered overall inflation of 1.8 percent in May for areas outside Metro Manila, from 2.3 percent in April, and 4.7 percent in May 2014, it added.

“Inflation remained low and stable in the first five months of 2015 in line with expectations over the policy horizon. This bodes well for household consumption,” Tungpalan said.

“With the country’s strong external position, the peso is expected to remain relatively stable and this will contribute to stable domestic prices going forward,” he added.

The NEDA the government should be ready to address the impact of El Niño on agriculture, which is seen persisting until next year.

“With the report that El Niño in the country is likely to continue until early 2016, we should be keen on monitoring drought in agricultural areas and be ready to assist our farmers should there be a need to shift to crops that are less dependent on water and at the same time resilient to the high temperature climate,” Tungpalan concluded.

Bottoming out
DBS Bank said the inflation rate has been on a decline since last August and may have reached bottom in May this year.

The Singapore-based bank pointed out risks from rising crude oil prices and the dry spells.

“Expect prices to slowly inch higher toward the year-end. CPI [consumer price index]inflation may just have bottomed out,” it said.

In addition, the bank said an inflation rate that stays within target and moderated loan growth may dispel the need for the BSP to tighten its policy rates this year.

“At the same time, it is unlikely [for us]to see CPI inflation nearing 4 percent again anytime soon. Average CPI inflation for this year is likely to be in the lower half of the central bank’s 2 percent to 4 percent target. Coupled with a moderation in loan growth, the central bank is unlikely to tighten its policy further this year,” DBS added.

The central bank has set a target range of 2.0 percent to 4.0 percent for inflation for full-year 2015.

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