Inflation slows down further in December

Consumer prices rose at a slower pace in December due to lower oil prices, the National Statistics Office (NSO) reported Tuesday.

The statistics agency said inflation—which is the rate of increase in goods and services—slowed to 8 percent last month from 9.9-percent in November. Last year, inflation was 3.9 percent.

The December inflation figure was way below the Bangko Sentral ng Pilipinas’ estimate of between 8.6 percent and 9.5 percent in December.

For the full year of 2008, inflation stood at 9.3 percent compared with 2.8 percent a year ago.

The NSO said the December inflation was effected by the negative annual growth rate posted in the fuel, light and water (FLW) index and the continued slow down in annual price increases of the heavily weighted food, beverages and tobacco (FBT) and the services index.

Prices of FLW items were down by 1.7 percent in December from 7.5 percent in November.

Slower annual price increases were also correspondingly registered in FBT and services items at 12.7 percent and 4.6 percent from 13.8 percent and 7.5 percent, respectively.

Price increments in clothing and miscellaneous items, on the other hand, were higher at 5 percent and 3.9 percent, respectively from the previous month’s rates of 4.9 percent and 3.8 percent.

Prices of house and repair items remained at 5.3 percent.

On a monthly basis, consumer prices further dropped by 0.9 percent in December from 0.6 percent in November.

“This was primarily due to the continued reductions in the prices of LPG, kerosene, gasoline and diesel nationwide,” NSO said.

Year-on-year, prices for food alone in the Philippines further dropped to 13.3 percent in December from 14.5 percent in November.

For the whole of 2008, the average inflation rate for food alone was higher at 13.6 percent compared with 3.3 percent a year ago.

Socioeconomic Planning Secretary Ralph Recto said lower fuel and energy prices pulled down December inflation, as prices of crude oil fell in the international market due to slackening worldwide demand, despite announcements of production cuts by members of the Organization of Petroleum Exporting Countries (OPEC).

“Reports from the International Energy Agency estimate that worldwide demand for crude oil declined in 2008, the first time that global demand decreased since 1983. This precipitated price rollbacks of local fuel products in December,” he said.

As of mid-December, prices of Dubai crude oil were lower by $8 a barrel than the November average price while local retail prices of unleaded gasoline and diesel were down a peso per liter, the official said.

“Electricity prices also declined during the month. According to a prominent electric company, the use of ‘banked’ gas, like natural gas that was contracted but not consumed for a certain year but made available for future use, reduced generation charges by P0.45 per kilowatt hour,” he added.

Given the shocks to inflation this past year, Recto said the target for 2009 will fall within the Development Budget Coordination Committee (DBCC) forecast of 6 percent to 8 percent.

“Nevertheless, inflation is expected to return within target rates [3.5 percent to 5.5 percent] in 2010,” Recto said.

In terms of products, the price of rice was slower at 28.7 percent in December from 30 percent in November; cereal preparations, 18.6 percent from 19.3 percent; dairy products, 11.9 percent from 12.9 percent; fish, 9 percent from 9.6 percent; fruits and vegetables, 7 percent from 11.7 percent; and miscellaneous foods, 8 percent from 8.6 percent.

On the other hand, higher price hike was posted in eggs at 5.7 percent from 5.5 percent while the annual price gains in corn and meat remained at their corresponding last month’s rates of 26.3 percent and 9.1 percent.

Prices in the National Capital Region (NCR) further slowed to 4.5 percent in December from 6.8 percent in November brought about by the slower annual price increments of all the commodity groups except for H&R and miscellaneous index.

 The same trend was also noted in areas outside the National Capital Region as inflation slid to 9.6 percent in December from 11.2 percent in November.

Slower inflation gives BSP more elbow room

Meanwhile, the Bangko Sentral ng Pilipinas (BSP) said it is open to further easing of monetary policy this year with the sharp deceleration in inflation last month.

“As inflation risks particularly from food and fuel prices continue to recede, we will carefully consider opportunities for monetary easing and mindful of potential tightening financial conditions,” BSP Governor Amando Tetangco, Jr., told reporters.

The central bank official said the deceleration in inflation as well as the slowdown in core inflation, which excludes other food and energy items last month is an auspicious beginning for this year

On December 18, the Monetary Board slashed the overnight borrowing and lending rates by 50 basis points to 5.5 percent and 7.5 percent, respectively.

The reduction of the BSP’s key policy rates would lower the cost of credit and to boost consumer lending in the light of global economic slowdown next year.

Tetangco said the board’s decision was based on the latest baseline forecasts, which reflected decelerating inflation.

Based on BSP’s latest inflation forecast, inflation is expected to reach 5.5 percent next year, which is lower than its forecast of 6 percent to 8 percent, Diwa Guinigundo, BSP deputy governor said earlier.

For 2010, Guinigundo said the BSP expects inflation to reach 5.2 percent, which falls within its target of 3.5 percent to 5.5 percent.

Meanwhile, Frederic Neumann, HSBC senior economist said food prices, which constitute almost half of the consumer price basket, would continue to ease amid global softening of demand despite the advent of falling agricultural output locally.

Neumann said inflation will be at 5 percent until the end of this quarter with protracted weakening of the peso, which will likely keep the headline index higher as compared with other Asian counterparts and to end next year at 4 percent.

Neumann said the BSP is expected to cut its interest rates by 50 basis points in the first quarter with the softening inflation. He added that potential slowdown in remittance flow and export earnings would lead to a further cut in the central bank rates.

“The overall scope for rate cuts in the Philippines remains limited relative to other countries as rates are already low by historical standards,” Neumann said. –Darwin G. Amojelar and Maricel E. Burgonio, Reporters, Manila Times