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September inflation slowest in more than 3 years

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A vendor rests in her market stand that sells rice in Quezon City. — REUTERS

INFLATION slowed to 0.9% in September amid lower food and electricity costs, the Philippine Statistics Authority (PSA) said on Friday.

Prices of widely-used goods and services in September further cooled from 1.7% in August due to “softer price adjustments observed in nearly all commodities and base effects, coming from 6.7% in the same period in 2018.”

The September reading was the slowest since the 0.7% logged in April 2016, but matched the 0.9% in May 2015 and May 2016.

Last month’s print fell at the low end of the Bangko Sentral ng Pilipinas’ (BSP) 0.6%-1.4% forecast for September. It was also below the 1.1% median estimate in BusinessWorld’s poll of 16 economists last week.

For the nine months to September, headline inflation averaged at 2.8%, well within the BSP’s 2-4% target range for 2019.

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The National Economic and Development Authority (NEDA) said in a statement it “expects inflation to further ease in the near term due to higher supply of rice in the country allowed by the Rice Tariffication Law (RTL).”

Food and non-alcoholic beverages recorded deflation at 0.9%, while non-food inflation eased to 1.6%.

The NEDA noted rice deflation continued for the fifth straight month, dropping to 8.9% in September from 5.2% in August.

“We see the Rice Tariffication Law continuing to help pull down overall inflation in the near term as it continues to help improve rice stock inventory of the country. This access to cheaper rice is good for Filipino consumers,” Socioeconomic Planning Secretary Ernesto M. Pernia was quoted as saying in the statement.

In a separate statement, the BSP said the September inflation print was “driven by the continued decline in rice prices and electricity rates, which offset higher prices of petroleum and selected food products.”

“The latest inflation outturn is likewise consistent with the BSP’s prevailing assessment that inflation will continue to decelerate in Q3 2019 and pick up slightly in the remaining months of 2019,” the central bank said.

ING NV-Manila Branch senior economist Nicholas Antonio T. Mapa noted that inflation eased after bottlenecks were addressed from last year’s “supply-side oriented” spike, paired with series of rate hikes implemented by the BSP.

“Inflation will likely revert target once base effects fade. Price pressures appear to be benign as food prices are expected to be more stable given new legislation and government’s openness to importing food stuff,” he said in a note sent to reporters.

Meanwhile, Security Bank Corp. economist Robert Dan J. Roces said the central bank may have reached the end of its projected easing cycle for the year.

“We think that further cuts might affect real interest rates if not managed since inflation is expected to normalize next year,” he said in a note sent to reporters.

However, he added that global pressure “does give scope for the BSP to consider further cuts should the situation warrant it.”

Inflation peaked at a near-decade high of 6.7% in September and October last year. Overall prices have since eased, allowing the central bank to start reversing some of last year’s 175-basis points’ worth of interest rate increases.

Last week, the central bank slashed its benchmark interest rate for a third time this year to support a slowing economy. It also reduced banks’ reserve requirement ratio by 100 basis points to boost credit growth.

“Declining inflation trend would provide increased flexibility in terms of greater leeway for any furthering easing of local monetary policy,” said Michael Ricafort, economist at Rizal Commercial Banking Corp.

Bangko Sentral ng Pilipinas Governor Benjamin Diokno said on Tuesday he remained confident 2019 growth would reach 6%, the lower end of its 6-7% forecast, but acknowledged it might just miss the mark.

He declined to say whether further easing would happen in 2019, saying it would depend on inflation rates which are currently “under control”. — L.W.T.Noble with Reuters

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