DoF: Small month-on-month price growth possible

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THE DEPARTMENT of Finance (DoF) said inflation will be on track over the rest of the year if the month-on-month price movements are capped at about 0.4 percentage points, with the latest data settling well below that ceiling.

The DoF said the month-on-month price growth declined to 0.17% in May from 0.25% in April.

The Philippine Statistics Authority (PSA) earlier reported that inflation in May of 3.1%, accelerating from the April rate of 3%.

“Inflation momentum is expected to recede further with crude oil prices moving to bear territory, with Dubai crude futures dropping below $60/barrel as of June 6,” the DoF said in a statement on Tuesday.

The DoF said the moderation in inflation month-on-month was largely caused by the stabilization in food prices, specifically rice.

The Rice Tariffication Law which was signed on March 5 aims to reduce the price of rice by liberalizing rice imports while collecting tariffs on foreign grain.

However, the DoF, citing data from the Philippine Statistics Authority, noted price increases in vegetables and fruits due to El Niño.

Non-food inflation meanwhile moderated to 0.18% month-on-month in May, from 0.35% in April when petroleum prices were rising, with Dubai crude oil peaking at $72.84 per barrel from $70.95 in April, the highest level since November 2018.

In May, the Bangko Sentral ng Pilipinas (BSP) reduced its policy rate by 25 basis points (bps) to 4.5%. The reserve requirement ratio (RRR) of banks has also been reduced by 200 bps to 16% from 18% with the first cut of 100 bps made on May 31, to be followed by a 50-bp cut on June 28 and another 50-bp cut on July 26.

BSP Governor Benjamin E. Diokno expects RRR to be in single digits by next year, while economists forecast more cuts by the end of this year.

Meanwhile, BSP Monetary Board Member Felipe M. Medalla said on Tuesday that there he sees no need for more cuts in policy rates with the current inflation trend. The BSP forecast inflation of 2.9% this year and 3.1% next year, both within the national government’s target range of 2-4%.

“Inflation is going to be a little bit below 3% this year, a little bit higher than 3% next year. Therefore there’s really no reason to change policy rates… If you look at the chart of inflation, there’s a 16-month period when inflation was below 2% and was even below 1% at that time. So if something like that were to happen, the economy is going to be very weak. Then you’ll have to take a position (of) maybe accelerating the reserve cuts or the policy rates. But right now, as I see it, its a safe bet that there’s no need to make adjustments unless we see new data,” Mr. Medalla told participants of BSP’s Conference on Gearing up for External Competitiveness.

“My own forecast is that no change [on rates] for at least two meetings,” Mr. Medalla said. — Reicelene Joy N. Ignacio