September inflation hit record-low 0.4%

Inflation rate fell to an all-time low of 0.4 percent in September, tempered by the price movement in food, electricity and oil, the National Economic and Development Authority said Tuesday.

Data from the Philippine Statistics Authority showed headline inflation rate eased further from 0.6 percent in August and from 4.4 percent in September 2014. This brought the average inflation in the first nine months to 1.6 percent, below the government’s target range of 2 percent to 4 percent for 2015.

“We expect the current low inflation environment exhibited in the first nine months of 2015 to persist throughout the rest of the year, more so, as international oil prices continue to remain low and are not expected to increase significantly in the near term,” said Economic Planning Secretary Arsenio Balisacan.

Inflation in the food subgroup eased to 0.7 percent in September, following slower price adjustments in majority of its sub-items such as breads and cereals, fish, fruits, and rice.

Non-food inflation also registered negative 0.2 percent, resulting from the sustained lowering of prices of electricity, gas, and other fuels.

Meanwhile, core inflation, which excludes selected volatile food and energy prices, decelerated to 1.4 percent from 1.6 percent in August and 3.4 percent in September 2014. Core inflation in the first nine months of 2015 averaged at 2.1 percent.

“The slowdown of core inflation further indicates that prices across a broad range of consumer items continue to remain stable,” Balisacan said.

Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said with the latest inflation figure, the current monetary policy stance remained appropriate.

“We have seen inflation further moderating to 0.4 percent in September 2015. Based on our latest forecasts, we should see inflation bottoming out on account of the impact of El Niño and weak peso,” Guinigundo said in a text message Tuesday.

“With supply conditions remaining generally favorable and demand continuing to be manageable, we expect inflation to keep within our forecasts of 1.6 percent for 2015, 2.6 percent for 2016, and 3 percent for 2017,” he said.

Bangko Sentral’s policy-making Monetary Board kept its benchmark interest rates unchanged this year. “The Monetary Board’s recent decision to keep monetary policy steady remains appropriate. Any development in the US Fed and China should be addressed by our preemptive moves last year which gave us the monetary space today,” Guinigundo said.

DBS Bank of Singapore said it did not see the Bangko Sentral easing its current policy stance despite the low inflation environment.

“Despite the softer inflation outlook, a rate cut doesn’t look imminent for now. Not as long as GDP growth momentum remains fairly strong, which is currently the case,” the bank said.

DBS said core inflation would likely remain below 2 percent for the rest of year, which meant that both headline and core inflation were set to miss the official target for this year.

“The fact that some inflationary risks on food prices persist means that BSP is also likely to keep its tight policy stance. Interestingly though, several other central banks in the region have eased their respective policy stance,” the bank said.

“With the US Fed also unlikely to be aggressive in tightening its monetary policy, there would be pressure on the BSP to lower its interest rates ahead. This is especially true if the central bank

would want to facilitate a softer peso ahead. We no longer expect any rate hike from the BSP in the next year. Risks are now tilted towards a cut,’ DBS said.

Jeff Ng, a regional economist for Asia of British bank Standard Chartered, said risks to food inflation remained on the upside, as the El Niño effect would likely persist until the end of the year.

“We expect inflation of 1 to 2 percent by end-2015 as high base effects wane, and to remain within the central bank’s 2 to 4 percent target next year,” Ng said.

ING Bank Manila senior economist Joey Cuyegkeng said a modestly higher inflation was expected towards the end of the year and in 2016.

“Government’s measures to ensure rice prices do not soar due to El Niño is in place through the importation of another 750,000 metric tons of rice for delivery later this year and early 2016,” Cuyegkeng said.

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