Home Business Inflation falls below 2% for the first time in more than four years

Inflation falls below 2% for the first time in more than four years

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Inflation falls below 2% for the first time in more than four years

By means of Luisa Maria Jacinta C. Jocson, Reporter

Headline inflation slowed sharply in September to the lowest level in more than four years as food and transportation costs fell, giving the Philippine central bank room for further policy easing.

The consumer price index (CPI) slowed to 1.9% year-on-year in September, compared with 3.3% in August and 6.1% a year ago, the Philippine Statistical Authority (PSA) said on Friday.

This was lower than the Bangko Sentral ng Pilipinas (BSP) 2%-2.8% forecast for the month. It was also lower than the average estimate of 2.5% yielded in a BusinessWorld survey of 15 analysts conducted last week.

September’s print was the slowest in over four years (52 months) or since the 1.6% print in May 2020.

In the first nine months, headline inflation averaged 3.4%, which is also the central bank’s annual forecast.

Core inflation, which excludes volatile food and fuel prices, fell to 2.4% in September from 5.9% a year ago. Core inflation averaged 3.1% in the January-September period.

National statistician Claire Dennis S. Mapa said the slower inflation was mainly driven by the heavily weighted food and non-alcoholic beverages index, which slowed to 1 in September from 3.9% a month earlier and 9.7% a year ago .4%.

The index accounted for a 69.1% share of the downward trend in inflation, he added.

Broken down, food inflation fell to 1.4% from 4.2% in August and to 10% the year before.

Cereals and grain products, including rice, were among the top contributors to this slowdown, falling to 4.9%, down from 11.5% a month ago and 14.1% a year earlier.

Rice inflation slowed sharply to 5.7% in September, compared with 14.7% in August and 17.9% last year. This was also the lowest rice inflation since hitting 4.2% in July 2023.

Mr Mapa said the lower rice prices were due to base effects and the impact of the tariff cut on rice imports.

An executive order went into effect in July, lowering tariffs on rice imports from 35% to 15% until 2028.

“There have been month-on-month declines since July. We see a decline in the nominal price, but not substantially,” he added.

PSA data showed that the average price of plain milled rice fell from P50.90 in July to P50.47 per kilogram in September; while good milled rice dropped to P55.51 per kilo from P55.85 in July. The average price of specialty rice fell to P64.05 from P64.42 in July.

The index for vegetables, tubers, plantains, cooking bananas and pulses also contributed to lower food inflation as it fell sharply by 15.8% in September from the 4.3% decline a month ago.

Meanwhile, transport inflation showed a faster annual decline of 2.4% in September, compared to the 0.2% decline in August.

Diesel inflation fell 19.6% from the 8.4% decline a month earlier, while petrol inflation fell to 13.8% from the 5.8% decline in August.

In September, adjustments to pump prices amounted to a net decrease of P0.95 per liter for gasoline, P2.10 for diesel and P2.35 for kerosene.

Mr Mapa also noted slower inflation in the housing, water, electricity, gas and other fuels index, which fell to 3.2% in September from 3.8% a month ago.

This was mainly due to liquefied petroleum gas prices, which fell to 10% from 17% in August.

Despite an increase in power rates in Metro Manila, electricity inflation fell to 2.5% from 3.2% a month ago. Manila Electric Co. (Meralco) increased the overall rate by P0.1543 per kilowatt hour (kWh) to P11.7882 per kWh in September, from P11.6339 per kWh in the previous month.

Meanwhile, PSA data showed the inflation rate for the bottom 30% of income households slowed to 2.5% in September, compared with 4.7% in August and 6.9% a year earlier.

In the nine months to September, the inflation rate for the bottom 30% averaged 4.6%.

In the National Capital Region (NCR), inflation fell to 1.7% in September from 6.1% a year earlier. Inflation in areas outside NCR averaged 2%, also much slower than 6% a year ago.

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National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan said inflation is expected to decline further in the coming months.

“The continued slowdown in inflation is expected to boost consumer confidence, boosting spending and consumption and boosting business expansion,” he said in a statement. “Additionally, lowering food prices will relieve the burden on low-income households, allowing them to spend more on other essential needs such as education and healthcare.”

Treasury Secretary Ralph G. Recto said full-year inflation could stabilize at 3.2% as the decline in rice prices becomes more apparent in the coming months.

Global rice prices are expected to fall following India’s decision to lift the export ban on non-basmati milled rice.

“The relatively slower and declining trend in inflation could continue, albeit with a slight increase towards the 2% level, barring geopolitical risks and adverse weather conditions, given the seasonal increase in demand towards the end of the year in the light of increased holiday-related inflation. expenditure,” said Michael L. Ricafort, chief economist of Rizal Commercial Banking Corp. in an email.

Pantheon Macroeconomics said in an email note that inflation could rise slightly in the coming months.

“This extremely favorable impact on food inflation – and by extension on headline – inflation will be partially reversed in the October report, bringing the latter back into the BSP’s target range of 2 to 4%, albeit only a touch above the lower bound , where we expect this to remain the case for the foreseeable future,” said Pantheon Macroeconomics.

BSP Governor Eli M. Remolona Jr. told Bloomberg on Thursday that inflation is expected to remain firmly within the target range of 2-4% this year.

He also said the central bank is likely to implement interest rate cuts in increments of 25 basis points (bps).

The BSP chief said there is a chance of a 25 basis point cut at the Monetary Board’s October 16 policy review, followed by another cut at the last meeting of the year on December 19.

Mr Recto said the latest inflationary pressures now give the central bank room to further cut policy rates.

“This gives the BSP more room to be aggressive in easing monetary policy to grow the economy faster and support the government in increasing its revenue collections,” he said.

Pantheon also said that lower-than-expected September pressure “effectively guarantees another BSP cut this month.”

“On monetary policy, we remain confident that the Governing Council will implement a further 25 basis points of cuts at its meeting this month, before gradually increasing the pace of easing to 50 basis points from December until the target reverse repo rate falls to a final level of 4.00%,” the report said.

Mr. Ricafort said the BSP could potentially cut rates by 50 basis points at its October meeting to match the last Fed cut.

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