‘Inflation to pick up in November’

Credit to Author: Mayvelin U. Caraballo, TMT| Date: Tue, 05 Nov 2019 16:33:44 +0000

THE country’s inflation likely bottomed out and would start accelerating this month after it slowed to 0.8 percent in October.

This is according to economists from ING Bank Manila, Bank of the Philippine Islands (BPI), ANZ Research, HSBC, Security Bank Corp., Rizal Commercial Banking Corp. (RCBC) and Union Bank of the Philippines (UnionBank).

Most of them believe that the Bangko Sentral ng Pilipinas (BSP) is finished with its easing bias for this year after implementing a combined 75-basis-point interest rate cut in May, August and September. This brought overnight borrowing, lending and deposit rates to 4 percent, 4.50 percent and 3.50 percent, respectively.

ING Bank Manila senior economist Nicholas Antonio Mapa said the latest inflation rate had “nowhere to go but up,” as base effects, which played a major role in forcing the headline print below 1 percent for the second straight month, dissipate.

“With the base effects from the peak of 2018 fading quickly, we expect inflation to revert to target as early as December,” he said.

BPI Vice President and lead economist Emilio Neri Jr. see consumer price growth this month and next picking up to above 1 percent.

“This means we are getting closer to the end of [the] BSP’s RRP (reverse repurchase) cuts,” he added.

ANZ Research’s chief economist Sanjay Mathur and economist Mustafa Arif see inflation gradually rising from October, saying “some evidence that the number of items with prices rising above 4 percent year-on-year, as well as their weights in the basket, is now falling at a slower pace.”

Nevertheless, they said the rise is unlikely to threaten the central bank’s monetary policy stance.

“We believe that monetary policy can continue to support growth over the next few meetings,” the ANZ economists added.

HSBC economist Noelan Arbis said the stable price increases suggested that the country “likely reached the trough” in inflation, “with prices likely to rebound in year-on-year terms from November onward.”

That said, he noted that the October inflation print should not prompt a change in the Bangko Sentral’s guidance that its policy rate cut in September is likely to be its last for the year.

Security Bank Assistant Vice President and economist Robert Dan Roces said “the signaled pause in monetary easing is prudent at this point and means that the BSP has enough policy leeway to manage any inflationary spike next year, if at all.”

UnionBank chief economist Ruben Carlo Asuncion pointed out that inflation in the last two months of the year is expected to bump up from seasonality factors.

“With BSP Governor Benjamin Diokno indicating that the easing cycle for this year has ended, it’s not likely that the [central bank] will further move during its November and December meetings,” he added.

RCBC economist Michael Ricafort dissented from this view, saying that the BSP might still cut rates as early as its next rate-setting meeting on November 14 or on December 12, “as easing inflation trend would still support any further easing of monetary policy.”

For its part, the BSP said the October inflation was consistent with its prevailing assessment that consumer price growth had likely bottomed out, and could start to pick up slightly in the remaining months of 2019.

“The BSP continues to expect average inflation to firmly settle within the target range of 3.0 percent ± 1.0 percentage point for 2019 to 2021,” it added.

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