(Updates with more comments from private analysts)
Headline inflation in October dropped further to a year-on-year rate of 4.3 percent from 4.4 percent in September, but though advancing from the 2.9 percent recorded a year earlier, the latest data from the Philippine Statistics Authority (PSA) showed on Wednesday.
The PSA said inflation slowed as result of the lower annual increments in the indices for food and non-alcoholic beverages; clothing and footwear; and restaurant and miscellaneous goods and services.
The central bank said the inflation turnout in October came in within its forecast of 3.7 percent to 4.6 percent for the month.
Private analysts polled by The Manila Times had projected headline inflation in October at between 3.9 percent and 4.3 percent, given continued declines in food and petroleum prices during the period.
Security Bank Corp.’s inflation estimate was spot on at 4.3 percent, saying it expected commodity prices to have been capped as a growth slowdown in the eurozone and in China must have contributed to the waning of demand for oil. Rahul Bajoria, economist at UK-based investment bank Barclays, also forecast October inflation at 4.3 percent.
While headline inflation eased last month, prices in Metro Manila inched up to drive the rate to 3.6 percent from 3.5 percent in September and remained higher than the 1.1 percent posted in October 2013, the PSA data showed.
In areas outside Metro Manila, annual inflation decelerated to 4.5 percent from 4.7 percent but was up from 3.4 percent a year ago.
Excluding selected food and energy items, core inflation further decelerated to 3.2 percent in October from 3.4 percent in September, but exceeded the 2.5 percent recorded during the same period last year.
‘Room to pause’ – BSP
Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said the latest inflation rate brings the year-to-date average to 4.3 percent, giving the monetary authority more confidence that the inflation target of 3 percent to 5 percent for 2014 is safe.
In a text message to reporters, Tetangco said the October inflation figure should help keep inflation expectations in check, especially in light of more favorable money supply conditions as the growth of the country’s money supply, or M3, has continued on its deceleration path.
“These developments give us room to pause. Nevertheless we will continue to monitor how our previous policy actions are filtering through to the economy and see if there would be need for adjustments in our policy levers,” he added.
Impact of lower oil prices
Rahul Bajoria, economist at UK-based investment bank Barclays, said the inflation data for October continued to show that the impact of lower oil prices is feeding through to the economy.
The economist noted that the decline in inflation is likely to be gradual, but should continue through the last quarter of the year.
“Given falling inflation and stabilization in money supply growth, BSP Governor Tetangco today gave the clearest indication to date that the BSP has room to pause. We expect the Bangko Sentral to keep rates unchanged for the next few months, and in our view, it will look to raise rates only in the second quarter of 2015,” he added.
Softening inflation environment
Meanwhile, the gradual easing of headline inflation is an evidence of a softening inflation environment, according to ING Bank Manila.
Joey Cuyegkeng, ING Bank Manila senior economist, said food inflation is on a downtrend and is likely to remain on that path as prices continue to ease further week-on-week.
He also noted that oil prices are likely to remain low. Crude oil prices on a peso value were 15 percent lower year-on-year in October and about 19 percent lower in early November. Cuyegkeng did point out, however, that power rates are likely to remain high with more upward pressures on power rates in January 2015.
“Softening inflation, together with developments abroad, including oil product prices and Saudi Arabia’s moves [on maintaining oil production], and developed markets’ monetary policy actions and guidance, delivers to BSP policy space to allow recent tightening moves to work through the economy,” he said.
Easing port congestion
Besides the ample supply of meat, fish, and vegetable items in the market and easing of commodity prices, the National Economic and Development Authority (NEDA) said the easing of logistics bottleneck in the port of Manila starting September also might have contributed to the abatement of price pressures in October.
(See separate story headlined NEDA: Inflation outlook improving)