Inflation slows to 7-mth low at 5.1%
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Fri, 04 Jan 2019 17:04:35 +0000
Headline inflation slowed to a seven-month low of 5.1 percent in December, the Philippine Statistics Authority (PSA) said on Friday, bringing the full-year average to 5.2 percent.
“The slowdown of inflation in December 2018 was mainly driven by the slower annual increments in the indices of food and non-alcoholic beverages at 6.7 percent and transport at 4.0 percent,” the PSA said in a statement.
The figure — down from the previous month’s four-month low of 6 percent and the lowest since May’s 4.6 percent — fell below the Bangko Sentral ng Pilipinas’ (BSP) 5.2. to 6.0 percent forecast.
The result was also better than the 5.7 percent average in a poll of economists by The Manila Times.
In a statement, BSP Officer in Charge and Deputy Governor Diwa Guinigundo said month-on-month inflation for December 2018 stood at -0.6 percent while deseasonalized series shows month-on-month inflation rate of -0.4 percent.
“Those are negative inflation rates that should tell us that indeed the supply-driven inflation process we saw in 2018 was not to be persistent and therefore short lived,” he added.
“This is also true of the impact of the tax reform package whose annual impact was less than 1 percentage point and diminishing,” Guinigundo said.
Full-year, core results
The full-year figure of 5.2 percent, meanwhile, exceeded the government’s 2.0 to 4.0 percent target but hit the 5.2 percent forecast of the central bank.
It, however, was the highest in 10 years or since the 8.2-percent full-year inflation recorded in 2008.
“This much lower reading derives from the lower annual inflation rates of both food and non-alcoholic beverages,” Guinigundo said.
PSA data also showed that core inflation, which excludes select food and energy items, fell to 4.7 percent from 5.1 percent in November.
Full-year core inflation settled at 4.2 percent.
“As we indicated previously, the uptick in core inflation was rather an aberration brought about by one single factor of higher transport cost due to adjustment in transport fare,” Guinigundo said.
“But for December, as expected following the non-convergence of various measures of core inflation, the official core inflation actually eased to 4.7 percent suggesting that demand pressures have not significantly built up,” he added.
He lauded the monetary and non-monetary measures implemented last year to manage inflation expectations.
He said the aggressive monetary tightening that the BSP implemented from May to November was aimed only at ensuring that the supply shocks from more than 60 percent increase in oil prices and the significant inflation rates of rice, fish, meat and vegetables did not evolve into sharp gains in wages, transport fares and prices of other services.
“Without a monetary response, it would have been possible for inflation expectations to be disanchored beyond reasonable proportions,” Guinigundo noted.
The BSP’s policy-making Monetary Board 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 to 4.0 percent target beginning March.
Also pivotal in the anti-inflation efforts was the decisive action of the government to immediately undertake non-monetary measures including the liberalized importation of key commodities including rice, fish, meat and sugar, Guinigundo said.
“Composite teams from various public agencies were also deployed to prevent hoarding and profiteering that could have aggravated the excessive price run-ups of various food commodities,” he added.
2019 prospects
Guinigundo said the central bank was optimistic on seeing low and stable inflation this year and the next given the early implementation of the rice tariffication law and sustained reforms in supply logistics.
The BSP forecasts 2019 and 2020 inflation to average at 3.2 percent and 3.0 percent, respectively.
“With lower price movement, we could be optimistic about the growth prospects and their positive feedback to inflation,” according to Gunigundo.
Still, he said the BSP shall continue to confront the issue of inflation with appropriate and vigilant stance of monetary policy in recognition of the remaining risks both here and abroad without losing sight of the requirements of economic growth.
“But the BSP shall also keep on relying on the analytics of what recent data would suggest in terms of the direction and magnitude of any potential monetary action,” the central bank official added.
ING Bank Manila senior economist Nicholas Antonio Mapa observed that risks to the inflation outlook appear tilted to the downside and expectations were now more anchored.
“With inflation trending back to the Bangko Sentral ng Pilipinas’ target of 2 to 4 percent, the case for the BSP to reverse its stance as early as 2Q19 (second quarter of 2019) has gained considerably,” he said.
Mapa projected that the monetary authorities would likely slash borrowing costs as early as its May 9 meeting to help bolster slowing growth momentum with its price stability mandate safeguarded.
“With market anticipating a less aggressive Fed rate hike cycle in 2019, the BSP may be afforded a window to walk back its own aggressive rate hike salvo from 2018,” he said.
The chances for a BSP two-pronged easing in the first half of 2019 has increased significantly, Mapa added, given the decelerating inflation, a more dovish Fed and possibly slowing growth momentum.
Malacañang also on Friday vowed not to be complacent even after the inflation rate in the country dipped to 5.1 percent in December.
In a statement, Palace spokesman Salvador Panelo said the administration would continue to address economic issues of the country.
“The President (Rodrigo Duterte) and this administration will not fall into complacency in balancing the country’s overall economic progress and alleviation of our people’s distress to inflation,” Panelo added.
“Filipinos can expect that we will remain vigilant as we continue to monitor the prices of basic goods and commodities, and implement measures to further ease the burden of our countrymen,” he said.
The spokesman added that the dip in the inflation rate might be tied to Duterte’s moves the past year to alleviate it.
“The Palace attributes this primarily to the President’s comprehension of the dynamics of Philippine economy and his corresponding actions of providing remedies to draw to a close the unease of the ordinary consumer,” Panelo said.
“We look back on the Chief Executive’s issuance of Administrative Order 13 which streamlined procedures on the importation of agricultural products such as rice, as well as Memorandum Orders 26, 27 and 28, which helped stabilize the prices of agriculture and fishery products at reasonable levels and maintained their sufficient supply in our markets,” he added.
Trade Secretary Ramon Lopez also on Friday said the Department of Trade and Industry expects inflation rate to go down further this year.
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