Inflation eases to 4-year low

MANILA, Philippines – Inflation eased to its slowest pace in nearly four years in July as the bulk of basic commodities posted slower price increases, giving the Bangko Sentral ng Pilipinas (BSP) enough reason to keep interest rates low.

In a report released yesterday, the National Statistics Office (NSO) said the July inflation was 2.5 percent, down from the revised 2.7 percent in June and 2.8 percent in May. It was the slowest since September 2009’s 2.3 percent.

The latest figure fell within the central bank’s 2.2-percent to 3.1-percent forecast range for July. However, the year-to-date average of 2.9 percent, steady from the first semester, was slightly below the official three to five-percent target for the year.

Excluding food and oil prices, core inflation was at a slower 2.3 percent from 2.8 percent month-on-month.

“The downward trend in price increases supports our assessment of benign inflation,” BSP Governor Amando Tetangco Jr. said in a text message to reporters.

The central bank chief then quelled concerns price increases may be slowing too much that it could affect growth in the long run, saying “inflation expectations remain well-anchored.”

“That said, this provides BSP room to make any further adjustments to policy stance if needed to address possible effects of changes in the growth trajectory of our main trading partners… and shifts in investor sentiment,” he explained.

In its last policy meeting last month, the central bank kept policy rates at historic lows of 3.5 percent and 5.5 percent, noting manageable inflation this year and the next.

According to the government statistics office, price increments slowed in six out of 11 commodity groups in July.

By region, inflation also slowed across the country.

The housing, water and electricity group led those which posted slower gains, with inflation dipping to 0.6 percent from a revised 1.4 percent the previous month.

The alcohol beverages and tobacco index, which in previous months recorded fast inflation owing to excise tax reform, inched down to 31 percent from 31.2 percent.

Other indices which have slower price gains were clothing and footwear (3.1 percent from 3.3 percent); furnishing, household equipment and routine (2.9 percent from 3.3 percent); recreation and culture (2.5 percent from 2.7 percent); and restaurant and miscellaneous goods (two percent from 2.1 percent).

Meanwhile, inflation was steady on the heavily-weighted food and non-alcoholic beverages index (2.3 percent), health (2.6 percent) and communication (0.1 percent).

Prices, on the other hand, increased on the transportation and education indices with inflation at 1.6 percent and 4.7 percent, respectively. In June, they were at 0.7 percent and 4.5 percent.

By area, the National Capital Region had slower price increases than the rest of the country, although both experienced dipping inflation to one percent and 2.9 percent, respectively.

In a commentary, HSBC economist Trinh Nguyen said low inflation gives BSP the chance to focus on boosting growth by keeping rates steady amid “slowing credit growth and remittance inflows.”

“For now, with inflation benign, policy rates already accommodative, past policy maneuvers still taking effect, the BSP has room to watch how domestic and external conditions unfold,” Nguyen said. –Prinz P. Magtulis (The Philippine Star)