Inflation picks up to 2.3% in October

Higher prices of key food items, particularly rice and transport costs, pushed inflation up in October, the Philippine Statistics Authority (PSA) reported on Tuesday.

Source: Business World

Consumer price growth accelerated to 2.3 percent last month from 1.9 percent in September, hitting the median estimate in a Manila Times poll of economists and also falling within the Bangko Sentral ng Pilipinas' (BSP) 2.0- to 2.8-percent forecast.

It was markedly lower than the year-earlier 4.9 percent and remained within the BSP's 2.0- to 4.0-percent target.

"The uptrend in the overall inflation in October 2024 was primarily influenced by the faster annual increment in the heavily-weighted food and non-alcoholic beverages at 2.9 percent during the month from 1.4 percent in September," the PSA said in a statement.

"Also contributing to the uptrend was transport with a slower year-on-year decrease of 2.1 percent during the month from a 2.4 percent annual drop in September 2024," it added.

Core inflation, which excludes volatile food and energy items, remained at 2.4 percent, but was lower than the 5.3 percent a year ago.

Year to date, headline inflation and core inflation averaged 3.3 percent and 3.1 percent, respectively.

Food inflation more than doubled to 3.0 percent last month from September's 1.4 percent and was attributed to rice inflation surging to 9.6 percent from 5.7 percent.

Food and non-alcoholic beverages accounted for the biggest share of overall inflation at 44.3 percent, or 1.5 percentage points, the PSA said.

"In addition, the index of corn also contributed to the uptrend as it recorded a faster annual increase of 9.7 percent during the month from 6.9 percent in September 2024," it noted.

The BSP, meanwhile, said that the latest inflation data was consistent with its assessment that consumer price growth would "continue to trend closer to the low end of the target range over the succeeding quarters."

"This reflects easing supply pressures for key food items, particularly rice," it added.

"Nonetheless, the balance of risks to the outlook for 2025 and 2026 has shifted toward the upside. Upside risks to the inflation outlook could emanate from the potential adjustments in electricity rates and higher minimum wages in areas outside Metro Manila, while downside factors continue to be linked to the impact of lower import tariffs on rice."

The policymaking Monetary Board, it continued, will "maintain a measured approach in its easing cycle to ensure price stability conducive to sustainable economic growth and employment."

Socioeconomic Planning Secretary Arsenio Balisacan said the latest inflation figures were a confirmation that government efforts to keep a lid on price growth were working.

While recent weather disturbances, including Severe Tropical Storm Kristine, have posed significant challenges to food supply and logistics, "the government is working relentlessly to keep food available and prices steady, particularly for essential commodities," he added.

"With targeted support and streamlined food supply chains, we aim to ensure that food is affordable and accessible for Filipino families, especially those most vulnerable to price shocks when disasters hit us."

Albay 2nd District Rep. Joey Salceda, an economist, also said that inflation was likely to end the year within target.

"This will also give the BSP license for further rate cuts, especially since expected OFW (overseas Filipino worker) remittances this December will give them some room on the currency strength side," he added.

While rice inflation "remains a fundamental problem," substantial import tariff cuts ordered in July "seems to have produced positive results, while keeping farmgate prices high for farmers."

Source: Manila Times

Economy below-target growth likely

The Philippine economy "is in need of further support," a London-based research firm said, warranting more rate cuts by the Bangko Sentral ng Pilipinas (BSP).

In a report released last Friday, Capital Economics noted that gross domestic product growth had slowed to 0.5 percent quarter on quarter, from 0.9 percent in the first three months of 2024, due to declines in private consumption and exports.

"Looking forward, fiscal tightening and weak export demand should keep growth subdued," it said.

Gross domestic product (GDP) growth currently stands at the bottom end of this year's downwardly revised target of 6.0-7.0 percent.

Economic managers have been saying that the target will likely be achieved and also raised the possibility that the goals could be raised given slowing inflation and increased government spending.

The BSP, Capital Economics said, will likely order a 25-basis point (bps) rate cut this Wednesday in a repeat of an August decision that kicked off an easing cycle.

Another cut is expected in December, with more in 2025, and the central bank's policy rate will likely end next year at 4.75 percent, it added.

This "makes us more dovish than the consensus," Capital Economics said.

It also noted that inflationary pressures were weak, with headline inflation having fallen to 1.9 percent in September — below the BSP's 2.0- to 4.0-percent target.

"Our forecast is that a combination of weak economic growth and falling food price inflation will keep [overall] inflation low," the research firm said.

Japanese investment bank Nomura, meanwhile, also expects the BSP to announce a 25-bps cut this week and again in December as it pursues a data-driven approach to setting monetary policy.

"We think BSP will cite the decline in headline inflation that allows it to further reduce the restrictiveness of its monetary stance in a calibrated manner, amid soft domestic demand conditions and a negative output gap," it said in a report last week.

A 25-bps cut will bring the BSP policy rate to 6.0 percent.

"[U]nlike other regional central banks, BSP adheres more strictly to its inflation targeting framework and will be more driven by the latest data outturns on inflation," Nomura said.

The outlook for inflation, Nomura added, suggests that it will remain slightly below target in the coming months; thus, Wednesday's "policy statement and comments in the press briefing are therefore also likely to remain dovish, with BSP continuing to comment that it sees scope to deliver more rate cuts."

It added that while the Monetary Board could raise its inflation forecasts to take into account higher crude oil prices, these will likely still be considered "target-consistent."

The BSP is also expected to declare that inflation expectations are well-anchored, which will set the " stage for another 25 basis points cut, which we forecast at the last monetary board meeting of the year in December," Nomura said.

While the US Federal Reserve's easing cycle also supports further BSP easing, the Philippine central bank is not expected to copy the Fed's jumbo 50-bps cut last month.

"The substantial RRR (reserve requirement ratio) cut is already providing additional easing, and [BSP] Governor [Eli] Remolona said he prefers 25bp increments in the policy rate," Nomura said.

The central bank last month announced a 250-bps cut in the RRR for universal and commercial banks and non-bank financial institutions with quasi-banking functions; 200 bps for digital banks; and 100 bps for thrift banks, rural banks and cooperative banks.

The new ratios will take effect on October 25.

Source: Manila Times

Inflation on track to fall within central bank’s target

The Philippines inflation is likely to slow this year to fall within the central bank’s target range, but higher transport charges and domestic rice production pose upside risks, the World Bank said.

In its latest monthly update, the World Bank said that the entry of more rice imports under lower tariffs should help keep inflation within the government’s 2-4% target.

“Inflation resumed its downward trend in August and is on track to fall within target this year,” the Washington-based lender said.

The consumer price index (CPI) eased to 3.3% in August from 4.4% in July. Inflation averaged 3.6% in the first seven months.

The Bangko Sentral ng Pilipinas (BSP) projects inflation to average 3.4% this year.

“The balance of risks to the outlook has shifted toward the downside given expected reductions in rice prices as more imports arrive under the reduced tariff regime,” the World Bank said.

An executive order cutting tariffs on rice to 15% from 35% took effect in July. This helped rice inflation ease to 14.7% in August from 20.9% in July.

However, the World Bank said higher transport and electricity charges, as well as possible global oil and food price shocks still provide upside risks to the inflation outlook.

“Domestic rice production and prices also remain vulnerable with the La Niña weather phenomenon expected to bring more rainfall and intense typhoons in the remaining months of the year,” World Bank said.

Meanwhile, the World Bank said recent external and domestic developments have given the BSP more space for policy easing.

“Peso appreciation, driven by a wider US interest rate differential, supports domestic disinflation. This gives more room for further normalization of domestic monetary policy,” it said.

The BSP began its easing cycle in August by cutting the target reverse repurchase (RRP) rate by 25 bps to 6.25% from the over 17-year high of 6.5%.

BSP Governor Eli M. Remolona, Jr. earlier said the Monetary Board could implement two more rate cuts at its last two meetings on Oct. 16 and Dec. 19.

The latest policy adjustments will also support faster bank lending, the World Bank said.

“Along with lower inflation, the reductions in the real interest rate, and lower reserve requirements could spur demand for credit in the near term by improving business and consumer sentiment,” World Bank said.

“The BSP estimates the full impact of these policy adjustments will be felt with a lag of 12-15 months.”

This month, the BSP will reduce the RRR for big banks and nonbank financial institutions with quasi-banking functions by 250 bps to 7% from 9.5%.

It will also reduce the ratio for digital banks by 200 bps to 4%, thrift banks by 100 bps to 1%, and rural banks and cooperative banks by 100 bps to 0%.

The World Bank noted the beginning of the US Federal Reserve’s easing cycle also helped increase inflows into the Philippines’ financial markets.

“Aggressive rate cuts by the US Federal Reserve have made assets in emerging economies more attractive to international investors and enhanced capital inflows,” the World Bank said.

The US Federal Reserve cut rates by 50 basis points last month, bringing its key policy rate within 4.75-5%.

Meanwhile, the World Bank said manufacturing sector’s performance will likely remain “modest” amid weak external demand for Philippine exports.

Source: Business World