Inflation eases in Q2, seen slowing further

THE BANGKO SENTRAL ng Pilipinas (BSP) said inflation settled at the midpoint of its target band in the second quarter, driven by improved domestic food supply conditions.

Inflation is also seen easing further in the coming months to fall within the government’s target for the year, with the effect of the mild El Niño phenomenon not expected to be a huge risk to prices.

Headline inflation eased to three percent in the April-June period, coming from the 3.8% recorded in the previous quarter and settling within the 2-4% target band. This brought domestic inflation to settle at 3.4% in the first half of the year.

In a press conference on Friday, BSP Deputy Governor Francisco G. Dakila, Jr. said lower price increases in the second quarter was driven by reduced food inflation brought by improved domestic food supply conditions.

“In particular, rice prices declined with the ongoing harvest season and the continued arrival of imports,” Mr. Dakila said.

President Rodrigo R. Duterte signed on Feb. 14 the rice tariffication law, which seeks to liberalize importation of the staple by replacing quantitative restrictions on rice imports with levies: 5% for rice coming from within the Association of Southeast Asian Nations (ASEAN); 40% for imports within the 350,000 metric-ton minimum access volume (MAV), regardless of country; and 180% for above-MAV imports from non-ASEAN countries.

Apart from rice, the BSP said other large-weighted food items such as meat, fish as well as milk, cheese and eggs also contributed to the slowdown of food inflation.

“Lower food prices in turn offset the impact of higher fuel prices,” Mr. Dakila added.

Energy prices climbed in the second quarter amid tighter supply concerns, with Dubai crude oil prices went up 6.1% on average in the April-June period.

“This was brought about by several developments including the strong compliance of the Organization of the Petroleum Exporting Countries (OPEC) and selected non-OPEC countries to their agreement to reduce supply,” the BSP said.

Core inflation — which strips volatile food and energy items in the consumer basket — slowed to 3.4% in the second quarter, coming from the 3.9% in the previous quarter.

INFLATION TO CONTINUE EASING
Looking ahead, the BSP expects inflation to “continue to ease,” expecting it to settle within its 2-4% target band until 2020.

“Inflation is projected to decelerate close to the low end of the target range in Q3 2019 before settling close to the midpoint of the target over the medium term,” the central bank said.

The BSP added that risks to the inflation outlook are “broadly balanced” for 2019 and 2020, as higher electricity rates, transport fare adjustments, proposed reforms in the excise taxes on alcoholic beverages and cigarettes and prolonged El Niño episode stand as “main upside risks.”

On the other hand, downside risks include slower global economic growth due to protectionist policies between US and China as well as geopolitical tensions.

Dennis D. Lapid, BSP Monetary Policy Sub-Sector officer-in-charge, said the central bank does not see the “mild” El Niño episode as a “huge” risk.

“It (El Niño) might be a little better now because we’ve liberalized the trade regime for rice. So you’ll now see response from the private sector kung magka-shortage ng (if there will be a shortage in) domestic supply,” Mr. Lapid told reporters on Friday.

He added that the dry spell can last until the end of the year, prompting the BSP to look at its effect on inflation until next year.

“So you have much drier period in the first, early part of 2020 and heading into the summer months. So that could also impact on 2020,” Mr. Lapid said.

During its June 20 monetary policy meeting, the central bank revised its inflation forecast for this year to 2.7% from the 2.9% expected in May and to 3% from 3.1% for 2020, on the back of likely lower global oil prices and the peso’s appreciation. — Karl Angelo N. Vidal