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Philippines: Inflation seen falling below 3% in April

MANILA, Philippines — Inflation may fall below three percent in April and remain within this level for the rest of the year, increasing the probability that the Bangko Sentral ng Pilipinas (BSP) may cut interest rates soon, according to London-based Capital Economics.

In a research note issued over the weekend, the macroeconomy research firm said despite the prevailing dry spell, headline inflation may fall below the midpoint of the BSP’s target range of two up to four percent this month.

Growth in consumer prices continued to slow down to 3.3 percent in March, the slowest pace in 15 months, largely because of softer growth in food prices. The headline rate for March was slower compared with 3.8 percent in February and 4.3 percent in March 2018.

Year-to date, inflation growth averaged at 3.8 percent, settling well-within the government target of two up to four percent for this year. This is the fifth month that growth in consumer prices has decelerated steadily.

Capital Economics said that while there are concerns that a period of dry spell caused by El Niño could put some upward pressure on rice prices, estimates from the Department of Agriculture suggest that rice production would just fall by 0.6 percent below target this year.

Any shortfall in production shortfall will likely be made up by increased imports, making the impact on prices insignificant.

Despite the recent increase in oil prices to around $70 per barrel, the firm also expects oil prices to fall back in the coming months.

“Overall our forecast is for headline inflation to fall below three percent in April and to remain below the midpoint of the BSP’s two up to four percent target range for the rest of the year,” said Capital Economics.

“The central bank has begun sounding more dovish, with Deputy Governor Diwa Guinigundo recently saying that the bank will begin to consider rate cuts after inflation falls to three percent. We are sticking with our forecast that rates will be cut in May,” it said.

The National Economic and Development Authority (NEDA) said late Friday that despite the further easing of inflation in March, the government is still on the lookout for risks that can cause price pressures.

“Despite the further easing of headline inflation in March 2019, the government will remain vigilant for risks such as the El Niño phenomenon, higher rates of electricity and water, and the volatility in global oil prices,” said NEDA Officer-in-Charge (OIC) Undersecretary Adoracion Navarro.

She noted that based on the latest report of the Philippine Atmospheric, Geophysical, & Astronomical Services Administration (PAGASA), mild to moderate El Niño conditions are estimated to last until October 2019 and will weaken in the last three months of the year.

Source: https://www.philstar.com/business/2019/04/08/1908099/inflation-seen-falling-below-3-april#g1phYGQwLxvRzJqr.99