If global oil prices continue to drop Inflation seen to decline

MANILA, Philippines - Falling oil prices in the global market are expected to temper upside risks to domestic inflation, the research arm of Metropolitan Bank and Trust Co. said.

 “Domestic inflation may have a downward bias if oil prices continue to decline, although most of the pressure will be in terms of local supply and seasonal demand,” Mabellene Reynaldo, research analyst at Metrobank, said in a report.

Inflation slid to 4.4 percent in September from 4.9 percent in August and in July amid lower increases of food prices, housing and utility rates.

The price of Dubai crude, a benchmark for oil trading in Asia, declined to an average $87.99 per barrel on Oct. 1 to 22 from an average $96.59 per barrel in September.

“Expect global commodity prices to remain muted in the fourth quarter, as concerns on slow global demand and a stronger dollar weigh down on commodity prices,” Reynaldo said.

As global commodity prices continue to decline, the index for energy prices in September dropped to its lowest level in two years, she noted.

“Oil prices reached two-year lows in September as the International Energy Agency reported that oil demand is slowing at a significant pace while supplies are moving steadily despite possible production disruptions from Middle East countries,” Reynaldo said.

Inflation has so far averaged 4.4 percent in the nine months to September, above the midpoint of the Bangko Sentral ng Pilipinas’ three to five percent target range.

BSP Deputy Governor Diwa C. Guinigundo said the downward trend of oil prices should help keep inflation in check although upside risks, particularly the petitions for higher power rates, remain.

The central bank last Thursday kept key policy rates steady as inflation is seen to hover within the target ranges for this year until 2016.

Monetary authorities even downgraded their 2014 average forecast to 4.4 percent from a previous projection of 4.5 percent, and lowered their 2015 average forecast to 3.7 percent to 3.8 percent. The BSP forecast inflation to average 2.8 percent in 2016, lower than the earlier projection of three percent.

The central bank keeps a three to five percent target for this year and a two to four percent goal for 2015 and 2016.