Inflation eased to a 13-month low in January on slower increases in food prices and transport costs, bolstering market expectations the Bangko Sentral will reduce its key rates further to boost the economy.
The National Statistics Office said inflation rose to 3.9 percent in January from 4.2 percent in December. Inflation year-on-year was at 4.1 percent.
Bangko Sentral Governor Amando Tetangco Jr. said the January inflation rate fell within the central bank’s forecast range of 3.6 percent to 4.5 percent.
“This supports our view that inflation remains manageable over the policy horizon, and affirms we continue to have policy space, should the need to support growth persist,” said Tetangco in a text message to reporters.
The central bank uses inflation targeting to determine the direction of key policy rates. It expects inflation to average at 3.1 percent in 2012 and 3.4 percent in 2013.
“There’s room for interest rates to go down further,” Jonathan Ravelas, chief market strategist at BDO Unibank Inc., said before the report. “Reduced economic growth prospects will lessen demand for goods and services and help stabilize inflation.”
The Bangko Sentral reduced its policy rate by 25 basis points to 4.25 percent last month, the first cut in more than two years.
“We will be watchful of developments, particularly the weather-related events in the Visayas, to see their impact on the food supply chain. We will also continue monitor global developments and their impact on our own domestic inflation dynamics,” said Tetangco.
“Headline CPI [consumer price index] is now below the mid-point of the official 3- to 5-percent target and we forecast it to stay there, if not ease further, in the next few months mainly because of lower food prices, which should help offset risks from higher crude oil prices,” said Ruben Paracuelles of Nomura Economics Research in Singapore.
He noted rice inventories had fallen from record highs but were above the pre-2008 average.
“Against that backdrop, we maintain our forecast that after the 25-basis point cut last month, BSP will continue to cut its policy rate. We expect a total of 125 basis points this year,” said Paracuelles.
The NSO attributed the lower inflation rate to a slowdown in the price gains of alcoholic beverages and tobacco; furnishing, household equipment and routine maintenance of the house; health; and transport indexes. The negative annual rate in the communication index also contributed to the downtrend. –Elaine R. Alanguilan, Manila Standard Today
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