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Thursday, August 17, 2017 | MANILA, PHILIPPINES
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   economic indicators

Date posted: Wednesday, September 07, 2016 | Manila, Philippines

BY Reniel D. Gloriani

Inflation eases in Aug. due to food



PRICES of consumer goods and services rose at a slightly slower pace in August on the back of a weaker push from the heavily weighted food items.

Preliminary data from the Philippine Statistics Authority (PSA) show inflation easing to 1.8% last month from 1.9% in July.

While the August headline number was more than double the 0.6% a year ago, the latest figure was within the 1.6-2.4% forecast of the Bangko Sentral ng Pilipinas (BSP) for the month and the 2% median forecast in a BusinessWorld poll last week.

Last month’s headline number brings the year-to-date figure to 1.5%, still below the BSP’s 2-4% target and 1.8% forecast for 2016.

Excluding the volatile food and energy items, core inflation picked up to 2% last month from 1.9% in July.

“The main reason for the below-target print was the sustained disinflationary trend in food prices,” Nicholas Antonio T. Mapa, associate economist of Bank of the Philippine Islands (BPI), said in an interview.

Food inflation eased to 2.5% last month from 2.8% last July. Including non-alcoholic beverages, prices likewise rose at a slower rate of 2.4% from 2.7% over the same period.

“We’ve seen remarkable resilience of this subsector, despite the El Niño drought and the onset of the La Niña episode of wet months,” Mr. Mapa said.

In a statement, the National Economic and Development Authority (NEDA) noted that the slowdown in food inflation was “… due to slower price adjustments of meat, vegetables and corn, which tempered higher prices of rice, fruits, sugar, and non-alcoholic beverages.”

Socioeconomic Planning Secretary Ernesto M. Pernia blamed the uptick in the price of rice on lower production brought about by an El Niño-induced drought, Typhoon Nona in the fourth quarter of 2015 and the northeast monsoon rains last January.

CLOSE WATCH ON RICE, UTILITIES
“Food inflation will stay stable given ample supply of palay and corn, which could keep upward price pressures at bay,” said Mr. Pernia, who heads NEDA as director-general.

“Moreover, the plan to import more rice through next year will add to the country’s buffer stock and ensure that overall food prices remain stable.”

Last week, the government sealed a deal to import a combined 250,000 metric tons from Vietnam and Thailand for delivery starting later this month.

Besides rice, Mr. Pernia also called attention to the need to keep the prices of utilities, specifically electricity and water, stable.

“Existing petitions for upward adjustment in power prices should be reviewed comprehensively as it remains an upside risk in inflation rates,” he said.

Prices of housing, water, electricity, gas and other fuels picked up by 0.2% last month, the first time in at least a year that inflation for this sub-group increased. August’s increase for this segment was the first in 21 months.

Yesterday, Manila Electric Co. announced that the September bill for a household that consumes 200 kilowatt-hours would drop by P9.02 per kilowatt-hour from the previous month.

Given below-target turnout so far this year, analysts expect the government to outperform its full-year inflation goal.

STABILITY FOR MONETARY POLICY
“Inflation is now projected to slip below BSP’s target for the year for the second year in a row on supply side factors,” said BPI’s Mr. Mapa.

ANZ Research economist Eugenia Fabon Victorino is looking at a full-year average of 1.9%, before headline inflation rises to 3% in 2017.

“The relatively low and manageable inflation environment during the first eight months of 2016 is expected to continue for the rest of the year as risks around the inflation projections are considered to be low,” NEDA’s Mr. Pernia said. “We are thus expecting full-year inflation to be close to the lower end of government’s target of 2-4%.”

BSP Governor Amando M. Tetangco, Jr. said the benign inflation rate for August should enable monetary authorities to further stand pat on current policy rates despite some risks of capital flight.

“These are consistent with our view that inflation remains manageable and will move to within forecast by 2017-2018. There therefore appears to be no strong need to change stance of policy,” Mr. Tetangco told reporters in a mobile phone message.

“But we are mindful of possible weather-related supply disruptions as well as financial market volatility from investor rebalancing. We will make adjustments as needed,” he added.

The BSP’s Monetary Board kept interest rates steady during their Aug. 11 meeting, citing manageable inflation and robust domestic activity that saw no need for further stimulus. Interest rates last saw operational adjustments that took effect June 3 as the central bank made a shift to an interest rate corridor.

Mr. Tetangco has said that the BSP would not need to move in sync with the US Federal Reserve should the latter implement a fresh rate hike towards yearend, which could result in outbound capital in the short-term.

Markets are awaiting a clearer signal from the Fed as to when the next “lift-off” may occur, following recent lower-than-expected US job generation.

In a note, ANZ Research economists said there is “little room” for the BSP to change its policy stance and proceed with its planned cut in reserve requirements for big banks, until a point when auction sizes under the term deposit facility are substantially raised. Under this scenario, ANZ Research expects the BSP to maintain policy settings until the first half of 2017. -- with Melissa Luz T. Lopez

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