Inflation drops to 6% in Nov
December 06, 2018
Govt takes credit; BSP expected to pause from hiking interest rates
Headline inflation slowed to a four-month low of 6.0 percent in November, the Philippines Statistics Authority (PSA) announced on Wednesday, raising expectations that monetary authorities would hold off from raising key interest rates anew before the year ends.
The figure — down from the previous month’s nine-year high of 6.7 percent and the lowest since July’s 5.7 percent — fell within the Bangko Sentral ng Pilipinas’ (BSP) 5.8-6.6 percent forecast.
The result was better than the Department of Finance’s 6.3 percent forecast — also the average in a Manila Times poll of economists.
The government claimed credit for the improvement, with the Finance, Budget and Socioeconomic Planning departments issuing a statement saying the decline “is suggesting the efficacy of anti-inflationary measures taken … and pointing to [a] continuing reduction going forward.”
“It is comforting for us that the slowdown will alleviate the struggles of poor Filipinos, especially now that the holiday season is just around the corner. This makes us even more determined in curbing inflation and enforcing all measures to guarantee food security,” they added.
In a message to reporters, Bangko Sentral Governor Nestor Espenilla Jr. called the November result “very encouraging.”
“For the first time we are seeing significant negative m-o-m (month-on-month) growth after inflation plateaued at around 6.7 percent,” he said, adding that “it confirms that inflation is heading back to the 2-4 percent target range in response to decisive non-monetary measures to curb food prices as well as favorable recent developments in highly volatile international oil prices.”
The BSP’s policymaking Monetary Board — scheduled to meet for the last time this year on December 13 — has raised key interest rates for five consecutive times so far in 2018, for a total of 175 basis points, after inflation breached the 2.0-4.0 percent target beginning March.
Espenilla said “strong monetary action has significantly reinforced the anti-inflation process through the expectations route and a firmer peso.”
He emphasized, however, that inflation’s direct impact on economic activity would take a longer time to take hold, which warrants close monitoring of core inflation.
PSA data showed that core inflation, which excludes selected food and energy items, rose to 5.1 percent from 4.9 percent in October.
“Monetary policy will need to stay vigilant to keep inflation under firm control amid expected strong economic growth,” Espenilla said.
Year to date, inflation remains above target at 5.2 percent.
The Finance, Budget and Socioeconomic Planning departments, for their part, highlighted a 0.3-percent decline in the seasonally adjusted consumer price index from the previous month’s 0.4-percent rise.
The noted that food and non-alcoholic beverages — one of the main drivers of inflation — posted a deceleration to 8.0 percent from 9.4 percent in October.
Food inflation alone slowed to 7.7 percent in November from 9.2 percent, attributed to improvements in the supply of key agricultural commodities such as rice, fish and seafood, meat, vegetables, corn and fruits.
“This is a positive development in the government’s commitment to manage inflation. But mitigating measures under various government issuances, including those prescribed in Administrative Order (AO) 13, issued by the President should be continuously implemented and strictly monitored,” the departments said.
AO 13, issued in September, lifted non-tariff barriers and administrative restrictions on the importation of farm goods. Memorandum Order 26 was also released that month, directing the Trade and Agriculture departments to implement measures to reduce the gap between farmgate and retail prices.
Rate hike pause
Some analysts now expect the central bank to hold off from hiking key interest rates following the inflation result.
“Our forecast is that inflation will drop back steadily over the coming months and return to the BSP’s 2-4 percent target range by the around the middle of next year. If we are right, then further rates hikes by the central bank are unlikely,” Alex Holmes of Capital Economics said.
ING Bank Manila senior economist Nicholas Antonio Mapa, meanwhile, remarked: “Although the central bank has reiterated its desire to remain vigilant against any signs of second-round effects and anchor expectations, should inflation continue to show this kind of stark deceleration over the next few months, we now open up the possibility of a reversal in BSP’s stance as early as 2Q 2019.”
ANZ Research analysts Shashank Mendiratta and Sanjay Mathur noted that a recent fall in global crude oil prices and the likely passage of the rice importation bill would allow the BSP to keep policy rates steady at its next meeting.
Credit belongs to : www.manilatimes.net