HEADLINE INFLATION is seen to remain within the Bangko Sentral ng Pilipinas (BSP) 2-4% target in the coming months despite the uptick in October, analysts said.
“Yes, headline inflation did accelerate year on year, but we don’t think there is any reason to worry,” HSBC economist for ASEAN Aris D. Dacanay said in a report.
“In fact, price pressures were relatively (and fortunately) benign, considering how supply conditions weren’t favorable due to the typhoons in late September,” he added.
Headline inflation picked up to 2.3% in October from 1.9% in September but slowed from 4.9% a year ago.
This brought average inflation in the 10-month period to 3.3%, still within the BSP’s 2-4% target but above the 3.1% full-year forecast.
Mr. Dacanay said he expects inflation to average below 3% well into 2025.
“Despite a slight uptick this month, inflation is still expected to remain within manageable levels or between the 2% to 4% target range for the rest of the year,” former Finance Secretary Margarito B. Teves said in a Viber message.
Mr. Dacanay said the outlook for improving inflation was due to the continued downtrend in rice prices.
“Despite the supply shocks, the lower tariff rates on rice and the drop in global rice prices are finally in the works, keeping overall inflation at bay,” he added.
Rice inflation, which contributed 30.8% to overall inflation, quickened to 9.6% in October from 5.7% a month ago.
However, retail prices of rice have been on the decline since the executive order cutting tariffs on rice imports to 15% took effect in July.
Latest data from the Philippine Statistics Authority showed the average price of regular milled rice dropped to P50.22 per kilo in October from P50.47 in September. Well-milled rice prices likewise decreased to P55.28 per kilo from P55.51.
The PSA also said that rice inflation and retail prices are likely to continue to go down moving forward.
“Note that rice represents roughly 9% of the Philippine CPI (consumer price index) basket, so what happens to rice prices affects the overall outlook for Philippine CPI. And so far, risks to rice prices are tilted to the downside,” Mr. Dacanay said.
“Global rice prices are currently falling, and we likely have yet to see it through with India resuming its non-basmati rice exports. The full effect of the tariff rate cut of rice have also yet to fully filter through retail rice prices.”
Pantheon Chief Emerging Asia Economist Miguel Chanco said the uptick in October was due to food inflation and will likely continue into November but “less pronouncedly, before food price base effects turn more neutral.”
“Fundamentally, the outlook for food inflation continues to improve, with upstream pressures still subsiding,” he added.
This inflation outlook will help support the central bank’s plans to further cut interest rates.
“This would allow the BSP to continue with its monetary easing cycle which started in August with a 25-basis-point (bp) cut,” Mr. Teves said.
“This likely gives the BSP room to continue its easing cycle in December, when we expect the central bank to cut rates by 25 bps to 5.75%,” Mr. Dacanay added.
The Monetary Board is set to meet on Dec. 19 for its last policy review for the year. BSP Governor Eli M. Remolona, Jr. has signaled the possibility of a 25-bp cut for the meeting.
Since August, the BSP has cut borrowing costs by a total of 50 bps, bringing the benchmark to 6%.
On the other hand, Mr. Dacanay flagged risks to the rate-cutting cycle, such as currency volatility.
“We continue to expect the BSP to continue its easing cycle in December but flag the risk of a rate pause if FX (foreign exchange) volatility were to persist due to global events,” he said.
“If the (peso) weakens against the US dollar due to global events, such as the US election, the BSP may opt to briefly pause its easing in December to give itself some flexibility if financial markets were to remain volatile,” he said.
“Nonetheless, the BSP should eventually continue its easing cycle once the volatility subsides, bringing the policy rate down to settle at 5% by 2025. In other words, if there are delays to the easing cycle, those delays will likely be only brief.” — Luisa Maria Jacinta C. Jocson
