Policy easing now more likely as inflation slows to 3.3%
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Fri, 05 Apr 2019 16:52:31 +0000
HEADLINE inflation slowed to a 15-month low of 3.3 percent in March, the Philippine Statistics Authority (PSA) reported on Friday, bolstering the chances that monetary authorities could begin relaxing policy next month.
The figure — down from February’s 3.8 percent and the lowest since December 2017’s 2.9 percent — fell within the Bangko Sentral ng Pilipinas’ (BSP) 3.1-3.9 percent forecast.
It was better than the 3.5 percent average forecast in a Manila Times poll of economists.
Core inflation, which excludes selected food and energy items, eased to 3.5 percent from 3.9 percent a month earlier.
Year-to-date, consumer price growth finally settled within the central bank’s 2.0-4.0 percent target at 3.8 percent, a development that analysts have said could spur policy easing.
‘Good news’
Central bank Governor Benjamin Diokno said the March result was “certainly good news,” being consistent with expectations that inflation would end up within target in 2019 and 2020.
“However, the possibility of a more severe El Niño, together with the possible rise in global crude oil prices provide upside price pressures over the near term,” he added.
Diokno also pointed to a potential slowdown in domestic economic activity due to a budget impasse as well as continued uncertainty in the global economic environment.
“Against this backdrop, the BSP will continue to keep a close watch over price developments in the country and shall consider all relevant information at its next monetary policy meeting on 9 May 2019 to ensure that the monetary policy stance remains consistent with the BSP’s primary mandate of price stability,” he said.
Above-target inflation prompted the Bangko Sentral’s policymaking Monetary Board to hike key interest rates five times last year, only pausing after inflation began easing in November.
Monetary authorities continued to pause from adjusting policy at their last meeting on March 21, noting the need for more data.
Commenting on the latest inflation data, ING Bank Manila senior economist Nicholas Antonio Mapa said the “data-dependent Bangko Sentral ng Pilipinas was thrown another data point to chew on with inflation pressure in the Philippines clearly dissipating”.
With inflation back on target and BSP forecasts showing it will likely settle at 3 percent this year and the next, Mapa said “the door to ease monetary policy remains wide open.”
He expects the BSP to finally consider reducing bank reserve requirements and slashing the policy rate in May “given signs of growth slowing after several institutions scaling back their growth projections for the year.”
Food inflation down
The National Economic and Development Authority (NEDA), meanwhile, noted that food inflation significantly slowed to 3.1 percent following softer price adjustments for fish, rice, vegetables, and other items.
“The decline in fish prices can be partly attributed to the end of the three-month closed fishing season in some parts of the Visayas,” NEDA officer in charge Adoracion Navarro said in a statement.
Expectations of increased supplies following the enactment of the Rice Tariffication Law, meanwhile, led to lower retail prices of the staple.
The NEDA also tagged El Niño phenomenon, higher rates of electricity and water, and the volatility in global oil prices as risks to inflation.
Citing a weather bureau report, it said that mild to moderate El Niño conditions were expected to occur from March to October 2019 before weakening in the last three months of the year.
“A prolonged dry spell may affect the prices of food and utilities in the short term,” Navarro pointed out.
To mitigate the adverse effects of El Niño, the NEDA said the inter-agency El Niño Task Force (ENTF) would be reactivated as recommended by the National Disaster Risk Reduction and Management Council.
The ENTF will revisit the 2015 Roadmap for Addressing the Impacts of El Niño, which will be expanded to include water security as an area of concern, among others.
Palace ‘confident’
Malacañang, meanwhile, said the government would strive to keep the inflation decline going despite risks from El Niño.
“We are confident that this slide would continue further for the rest of the year,” Palace spokesman Salvador Panelo said in a statement.
To mitigate the impact of dry spells and droughts, he noted that the Agriculture department “has already distributed water pumps and shallow tube wells as part of its pre-El Nino action. We are also ready to conduct cloud seeding, if necessary.”
Panelo also called for water conservation “to increase our resiliency against this extreme weather phenomenon.”
Implementation of the Rice Tariffication Act, meanwhile, is expected to lead to lower prices “and even cut inflation by 0.5 to 0.7 percentage point this year,” he said.
WITH A REPORT FROM RALPH EDWIN U. VILLANUEVA
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