... As BSP expects prices to pick up toward year-end

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) expects inflation to pick up slightly in the coming months due to the volatility in global crude oil prices.

BSP Governor Benjamin Diokno said last month’s inflation was within the central bank’s forecast range of 0.6 percent to 1.4 percent, and was driven by the continued decline in rice prices and electricity rates, which offset higher prices of petroleum and selected food products.

“The latest inflation outturn is likewise consistent with the BSP’s prevailing assessment that inflation will continue to decelerate in Q3 2019 and pick up slightly in the remaining months of 2019,” Diokno said in a statement.

Inflation last month matched the 0.9 percent rate in March 2016, the last time growth in the consumer price index fell below one percent.

He added the central bank expects average inflation to firmly settle within the target range of two to four percent between 2019 and 2021. Inflation averaged 2.8 percent in the first nine months of the year, slightly below the midpoint of the BSP’s two percent to four percent target.

Based on its latest assessment, the BSP’s Monetary Board slightly lowered its inflation forecast to 2.5 percent instead of 2.6 percent for 2019, but retained the projection at 2.9 percent for 2020 and 2021.

Diokno said the recent volatility in global crude oil prices due to geopolitical tensions in the Middle East could generate upward price pressures over the near term.

On the other hand, the BSP chief added the deepening trade tensions between the US and China along with other countries in the region have raised global economic uncertainty and poses a downside risk to the inflation outlook.

“The BSP will continue to keep a close watch over latest economic developments here and abroad to ensure that the monetary policy stance remains consistent with the BSP’s price stability objective, while being supportive of economic growth,” Diokno said.

He said the Monetary Board would continue to be data dependent for its two remaining rate-setting meetings for 2019 scheduled in November and December and would keep a close watch on inflation for October and December, the third quarter gross domestic product (GDP) growth as well as the latest World Economic Outlook of the International Monetary Fund (IMF).

The benign inflation outlook has allowed the Monetary Board to deliver its third rate cut for the year last Sept. 26.

The central bank has so far reduced interest rates by a total of 75 basis points (bps) since May this year, partially unwinding a tightening cycle that saw benchmark rates rise by 175 bps last year as inflation accelerated to 5.2 percent from 2.9 percent in 2017 and exceeded the BSP’s two to four percent target due to elevated oil and food prices as well as weak peso.

Diokno also pointed out the sharp drop in inflation in September is part of the downward trajectory of inflation after peaking at 6.7 percent in September and October last year and is proof of the adage, “many hands make light work.”

“This spectacular fall in inflation is not due to one institution or policy action alone. It is ‘whole of government’ effort— the President for his political will, Congress for passing the game-changing rice tariffication law, the economic managers for their policy analysis, persistence, and close monitoring, and for BSP and the Monetary Board for raising interest rates. It is also due to the normalization of world oil prices,” Diokno added.

According to Diokno, a goal would be achieved quickly and efficiently when all parties act together with the aim of achieving a common objective.

For his part, Nomura Securities Ltd economist Euben Paracuelles said September should mark the low for inflation and expect it to start gradually picking up, in part as base effects become less favorable.