May inflation slows to 18-month low of 3.3%

MANILA, Philippines – Consumer prices slowed to an 18-month low of 3.3 percent in May, the Bangko Sentral ng Pilipinas (BSP) said yesterday, keeping the door open for further policy easing.

The figure was at the lower end of the central bank’s forecast of between 3.3 and 4.2 percent inflation. April’s rate was 4.8 percent, the National Statistics Office (NSCO) office said in a statement, confirming the bank’s forecast from last month.

“This further confirms the central bank’s view that the inflation outlook will continue to converge around the 2.5 percent to 4.5 percent target for this year,” BSP Governor Amando M. Tetangco said.

“The scope for monetary easing therefore continues, but tempered only by the need to ensure liquidity does not become excessive,” Tetangco said.

He said slowing inflation, along with the central bank’s recent rate cuts, should support economic growth.

Socioeconomic Planning Secretary Ralph Recto said the May data brought the average inflation rate for the first five months of the year to 5.8 percent.

This is still above the government forecast of 2.5 to 4.5 percent inflation for the whole of 2009 but the May figures also shows “considerable downward momentum,” Recto said.

He cited the fall in prices of fuel and electricity in May compared to the previous month and the decline in the prices of meat in the same period.

The price increases of other items also slowed down or remained flat in May, contributing to the lower inflation rate, he remarked.

The fall in the inflation rate was also widely taken as a sign that interest rates would be cut further, which in turn would help the economy.

“You can see that the prices of goods are low. If inflation is at a low level, definitely interest rates will follow suit,” said Gomer Tan of Regina Capital Development Corp.

The inflation rate could hit bottom by July, Jose Vistan of AB Capital Securities told Dow Jones Newswires, adding that this would give the central bank at least one more opportunity to trim overnight rates.

The downturn in the inflation rate helped pull the Philippine stock exchange index up by 1.38 percent Friday.

The lower inflation came as welcome economic news for the Philippine government which recently announced the country was on the edge of a recession after economic growth slowed to 0.4 percent or a 10-year low during the first quarter of the year.

Inflation rate in the National Capital Region (NCR) went down by 1.4 percentage points to 0.8 percent in May from 2.2 percent in April as a result of the decline in the prices of fuel, light and water (FLW) and services index. The slower annual inflation rate for food, beverages and tobacco (FBT) and miscellaneous index also contributed to the downtrend while those for the rest of the commodity groups remained at April levels.

The NSO said the same trend was seen in the annual inflation rate in Areas Outside the National Capital Region (AONCR) as it moved at a slower pace of 4.2 percent in May from 5.8 percent in April, caused by the slowdowns in the annual price hikes of all the commodity groups except in the housing and repairs (H&R) group.

The NSO reported that the annual rates of price increases in all the commodity groups improved in April, with the annual inflation in FLW index further dropping to -4.9 percent from -2.4 percent.

Similarly, the year-on-year inflation in FBT index moved down to 5.9 percent in May from eight percent in April; clothing, 2.6 percent from 2.8 percent; H&R, 3.1 percent from 3.2 percent; services, 0.4 percent from 1.7 percent; and miscellaneous items, 2.9 percent from three percent.