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Philippines: Inflation slows to 2.6% in February
Gives BSP room to cut rates aggressively
MANILA, Philippines — Growth in consumer prices decelerated in February on slower growth in the cost of transport, alcoholic beverages and tobacco, as well as housing and utilities, the Philippine Statistics Authority (PSA) said yesterday.
The headline inflation rate fell to 2.6 percent in February from 2.9 percent in January and 3.8 percent in February 2019, bringing the average so far this year to 2.8 percent.
Inflation had been on a steady uptrend since November but remains well within the government’s target band of two to four percent.
Slowdowns were most pronounced in the indexes of transport; alcoholic beverages and tobacco; as well as housing and utilities.
Slower growth was seen in the prices petroleum and fuels for personal transport; cigarettes; as well as kerosene, electricity, and liquefied petroleum gas for cooking.
Assistant National Statistician Divina Gracia del Prado attributed the deceleration in the transport index to the sustained rollback in the prices of petroleum products in February.
“We are seeing the effect of the rollback for our inflation in transport,” she said in a briefing yesterday.
The heavily weighted food and non-alcoholic beverages likewise registered slower growth in February as deceleration was seen in the prices of fish, vegetables and rice.
Rice prices declined for the 10th consecutive month in February by 7.3 percent.
Faster growth, meanwhile, was seen in the index of furnishing, household equipment and routine maintenance of the house.
Flat growth, meanwhile, was seen in the indexes of clothing and footwear, health, communication, recreation and culture, education, as well as restaurant and miscellaneous goods and services.
Consumer prices grew at a slower pace in the National Capital Region (NCR) where the headline rate settled at two percent in February from 2.7 percent in January.
Negative growth was seen in the index of housing and utilities, while slower growth was seen in the indexes of food and non-alcoholic beverages, alcoholic beverages and tobacco, and transport. Among food items, lower prices of corn, rice, and sugar were seen in NCR.
Inflation in areas outside NCR (AONCR), meanwhile, rose by 2.8 percent in February from three percent in January.
The highest rate was registered in the Bicol Region at 3.6 percent while the lowest was seen in Eastern Visayas at 1.9 percent.
The National Economic and Development Authority (NEDA) said that while inflation remains well-within the government’s target range, the country needs to remain vigilant and well-positioned against possible risks to inflation.
“While inflation is expected to remain well within the target for this year, government must not be complacent and ensure that strategies are well-positioned against risks brought by continuous spread of African swine fever (ASF), tighter rice supply from Thailand, and the ongoing outbreak of coronavirus disease 2019 (COVID-2019),” said Socioeconomic Planning Secretary Ernesto Pernia.
“We call on our colleagues in the government, both in the national and local levels, to stand ready in effectively managing the demand and supply of key agricultural commodities which will possibly be affected by these risks.”
The slower increase in the prices of basic commodities and services gives the Bangko Sentral ng Pilipinas (BSP) room to aggressively cut interest rates to help cushion the impact of the global outbreak of COVID-19.
Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines, said inflation is likely to soften further after easing to 2.6 percent in February, ending three straight months of increase.
“Trend is toward a softer inflation level, of course, until fears and aversion behavior due to COVID-19 dissipates,” Asuncion said.
Asuncion added the central bank has huge policy space after cutting interest rates by 100 basis points since May last year, partially unwinding a tightening cycle that saw rates rise by 175 basis points in 2018.
However, he said policy coordination, both monetary and fiscal, should be prioritized to better manage the economic challenges ahead.
Metropolitan Bank & Trust Co. research analyst Pauline Revillas said in the bank’s weekly views the impact of the global outbreak of COVID-19 on the Philippines would largely flow through tourism, trade, and lower investment sentiment for emerging markets.
Revillas said it is very important that policy measures of the national government are geared towards further strengthening our domestic demand.
“The BSP is seen to have enough room to cut aggressively than initially signaled at the start of the year,” Revillas said.
Revillas pointed out lower interest rates would help stimulate economic activity and could support the improvement in private investment spending.
“The sustained acceleration of government spending, given the timely approval of the 2020 national budget, could also help support the domestic economy despite this major external headwind,” Revillas said.
Global policymakers are on the move to ease market anxiety over the likely impact of the virus outbreak, with the US Federal Reserve delivering a surprise 50 basis points rate cut during an emergency session last March 3.
ANZ Research economist Mustafa Arif said the COVID-19 outbreak and emergency easing by the US Fed have increased the odds for a cut in March as inflationary pressures would remain modest amid lower global crude prices.
ANZ was originally expecting another 25 basis points rate cut by the central bank’s Monetary Board in May.
BSP Governor Benjamin Diokno said the inflation outturn last month was consistent with the central bank’s assessment that inflation would steadily approach the midpoint of its two to four percent target range in 2020 and 2021.
Diokno said the main drivers for tamer inflation are the tumbling crude oil and lower food prices.
“The BSP will consider these developments in the Monetary Board’s policy meeting on March 19,” Diokno added.
The BSP said the ongoing spread of COVID-19 could have an adverse impact on domestic economic activity and financial market sentiment in the coming months.
It added adjustments in utility rates, petitions for transport fare hikes, and the impact of ASF on meat prices are the main upside risks to inflation.
The BSP chief made it clear the Monetary Board would not hold an emergency session to tweak interest rates before the scheduled second rate-setting meeting for the year on March 19.
“One thing is certain: there will be no off-cycle MB move to cut policy rates,” Diokno said in a text message Wednesday evening.
Diokno is not ruling additional rate cuts this year on top of the 50 basis points he signaled last December.
Last Feb. 6, the central bank slashed interest rates by 25 basis points as a preemptive move to boost market confidence and prevent potential spillovers from the impact of external headwinds such as the impact of COVID-19 outbreak.
Source: https://www.philstar.com/business/2020/03/06/1998435/inflation-slows-26-february