Strict quarantine tempers inflation more in May

MANILA, Philippines — Inflation sustained it year-to-date downtrend in May, the Philippine Statistics Authority (PSA) reported Friday morning, as anemic consumer demand due to lockdowns meant to curb the coronavirus outbreak tamed prices.

Inflation, as measured by consumer price index, cooled further to 2.1% year-on-year in May, down for the fourth straight month from 2.2% in April and slower than 3.2% recorded the same period a year ago.

The latest reading fell comfortably within the Bangko Sentral ng Pilipinas' (BSP) 1.9-2.7% forecast for the month. For the first five months of the year, inflation averaged 2.5%, falling at the low-end of the central bank's 2-4% annual target.

"The latest inflation number is consistent with the prevailing assessment by BSP that inflation is expected to remain benign over the policy horizon due largely to the adverse impact of the coronavirus pandemic on the domestic and global economy," BSP Governor Benjamin Diokno told reporters in a Viber message.

The impact of the pandemic can easily be gleaned from PSA’s latest report. State statisticians said the benign inflation last month was mainly driven by 5.6% annual drop in transport costs just when most public transport was shut in Luzon during the enhanced community quarantine that lasted until May 31 for the entire island. Key areas in the Visayas and Mindanao were also put on lockdown.

With most cities at a standstill during the stringent quarantine period, demand for transport tempered, dragging consumer prices with it. Starting June 1, the National Capital Region (NCR) led other areas to see lockdowns further ease.

By location, prices in NCR rose an annual 1.4% in May, albeit slightly higher than 1.2% a month ago. Outside NCR, inflation eased further to 2.2% year-on-year from 2.5% the preceding month, the report showed.

On top of transport deflation, heavily-weighted food and non-alcoholic beverages inflation eased to 2.9% in May from 3.4% a month ago due to declining rice and confectionary prices. These were partially offset by slightly faster price upticks for alcohol and tobacco products at 18% annually.

Four subindices measuring goods and services prices on education, restaurant and miscellanous goods and services, communication and health posted the same magnitude of price upticks from April, PSA data showed.

All eyes on BSP on June 25

With inflation becoming less of a problem for policymakers, Diokno said the BSP is "ready to use all available measures in its policy toolkit" to help the economy recover from the coronavirus fallout. Nicholas Antonio Mapa, senior economist at ING Bank in Manila, said the central bank can afford to pump more liquidity in the system.

"Decelerating inflation and the need to provide additional stimulus to an economy headed for a recession sets up a possible BSP rate cut at the 25 June meeting," Mapa said in an e-mail.

BSP has so far cut benchmark rates by a total of 125 basis points since March, and slashed required bank reserve levels by 200 bps. On top of these, the central bank also lent the government P300 billion by purchasing Treasury bonds, payable in three months.

In total, BSP estimates showed P1.1 trillion in fresh liquidity was unleased in the economy through central bank measures.

"The BSP reiterates it’s support for urgent and carefully coordinated measures with other government authorities to ease the adverse effects of the coronavirus pandemic on individuals and firms, with a view toward preventing any long-lasting economic and social damage," Diokno said.