Monetary official expects further drop in inflation this month

MANILA, Philippines — Inflation may ease further this month as oil prices continued to behave well despite the knee-jerk reaction from the attacks in the oil production facilities in Saudi Arabia as well as the expected further decline in rice prices.

Bruce Tolentino, a member of the central bank’s Monetary Board, told reporters the consumer price index (CPI) could further ease this month after peaking at 6.7 percent in September and October last year due to elevated oil and food prices.

“It could go lower. Well even purely from base effects. If you look at the rice prices it is still going lower and oil is not going up,” Tolentino said.

Inflation averaged 2.8 percent in the first nine months after falling below one percent at 0.9 percent in September from 1.7 percent in August.

This allowed the Bangko Sentral ng Pilipinas (BSP) to cut benchmark rates thrice with a cumulative reduction of 75 basis points so far this year.

Elevated oil and food prices as well as the weak peso pushed inflation above the BSP’s two to four percent target at 5.2 percent last year, resulting in a tightening cycle that saw interest rates rise by 175 basis points.

“The inflation outlook for the rest of the year is it will at least go sideways or lower,” he said.

The BSP expects inflation to ease to 2.5 percent this year before accelerating slightly to 2.9 percent for 2020 and 2021.

“The reported forecast for next year is there will be an uptick and it depends also on what happens to the Middle East. But we are fairly confident that we will stay within the target range at least for this year and definitely next year,” he said.

According to Tolentino, the BSP is opposing the proposed imposition of a safeguard duty on rice imports to protect farmers from the detrimental effects of an import surge arising from the liberalization of the rice industry under Republic Act 11203 or the Rice Tariffication Law.

He said the imposition of a safeguard duty on imports could push rice prices higher and fan inflation.

“Any kind of additional tariffs will kick prices up and will add to inflation. From the central bank, no,” Tolentino replied when asked if the BSP is supporting the proposed imposition of a safeguard duty on rice imports.

Aside from the P10 billion per year rice competitiveness enhancement fund (RCEF), Tolentino said the 35 percent import duty on rice imports is already enough to protect badly affected rice farmers.

“At 35 percent, where do you get that kind of tariff. The only commodity that has that kind of high tariff is sugar,” he added.

Tolentino said monetary authorities are still confident the government could achieve the lower end of its six to seven percent gross domestic product (GDP) growth target for this year by pursuing the massive infrastructure program.