(Adding more details, analyst and NEDA comments)
Headline inflation slowed to a year-on-year rate of 4.4 percent in September, easing from 4.9 percent in August but accelerating from the 2.7 percent recorded in September last year, the latest data from the Philippine Statistics Authority (PSA) showed on Wednesday.
The PSA traced the slowdown to a drop in prices in the heavily weighted food and non-alcoholic beverages index.
Annual rates also decelerated in the indices for housing, water, electricity, gas and other fuels and transport prices, it said.
Inflation in Metro Manila eased to 3.5 percent from 4.4 percent in August, still higher than the 1.1 percent posted in September 2013. In areas outside Metro Manila, annual inflation decelerated to 4.7 percent from 5 percent but gained pace from 3.1 percent a year ago.
Excluding selected food and energy items, core inflation held steady at 3.4 percent from August, although higher compared with 2.3 percent in September last year.
The central bank said the September rate falls squarely within its forecast of 4.1 percent to 4.9 percent for the month.
Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said the latest inflation rate puts the year-to-date average at 4.4 percent, giving the monetary authority more confidence that the 2014 full-year average will be within its 3 percent to 5 percent target.
“Nevertheless, we continue to be mindful of the risks to the path of inflation over the medium term, which include financial market volatilities that may result from monetary policy normalization, the impact of geopolitical developments on prices of commodities, as well as changes in market inflation expectations,” Tetangco stated in a text message to reporters.
Tetangco also said that the central bank will make adjustments to policy levers as conditions warrant.
The next Monetary Board meeting in which the latest policy stance is decided and later announced is scheduled for October 23.
No pause seen in BSP tightening
Despite the milder September inflation rate, one local analyst said that alone is unlikely to convince the Monetary Board to pause its tightening trend at that policy rate meeting.
“A downward trend [in inflation]would argue for a pause. But if the inflation outlook remains skewed to the upside, which may threaten inflation targets for 2015, then BSP would remain on a pre-emptive track,” ING Bank Manila senior economist Joey Cuyegkeng said.
In a preemptive response to signs of inflation pressures and elevated inflation expectations, the Monetary Board of the BSP at its September 11 meeting decided to raise its key policy rates and the interest rate for special deposit accounts (SDA) by 25 basis points each.
The rate for the overnight borrowing, or reverse repurchase facility now stands at 4.0 percent, up from 3.75 percent, and the rate for overnight lending, or repurchase facility, has been raised to 6.0 percent from 5.75 percent. The interest rate paid on SDA was also hiked to 2.50 percent from 2.25 percent.
Slowdown in food, power, oil inflation
In a more detailed explanation of September’s result, the National Economic and Development Authority (NEDA) said moderate food inflation, lower electricity charges and the rollback in global and local petroleum prices contributed to the slower overall inflation in September.
The agency said food inflation dropped to 7.4 percent in September 2014 from 8.3 percent in the previous month, backed by lower price increases in rice, corn and vegetables.
The price of Dubai crude also declined in September, pulling down local petroleum prices during the month, while the generation charge of Manila Electric Co. (Meralco) rose by only 0.4 percent in September, NEDA noted.
“This was much lower when compared to the almost 12 percent annual increase reported in the previous month. Generation and transmission charges declined, with the improved availability of generation plants in operation and with less forced outages,” said NEDA Officer-in-Charge and Deputy Director General Emmanuel Esguerra.
Overall, the agency expects that the country’s inflation rate for full-year 2014 will still be within the Development Budget Coordination Committee’s target of 3 percent to 5 percent.
“Notwithstanding upward pressures on prices, the general market inflation expectations remain well-anchored, as policies remain supportive of a manageable inflation rate,” said Esguerra. MAYVELIN U. CARABALLO