Inflation eases to 2.5%, lowest since 2009

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Category: Top News

Published on Tuesday, 06 August 2013 21:16

Written by Cai U. Ordinario and Bianca Cuaresma

Lower price increases of food and select commodities, as well as of utilities and services, caused the country’s inflation rate to ease further in July, according to data released by the National Statistics Office (NSO) on Tuesday.

The NSO said inflation eased to 2.5 percent, the lowest since September 2009, when it hit 2.3 percent. Inflation during the same period last year was at 3.2 percent, while inflation in June was 2.7 percent.

With this, the country’s average inflation rate between January and July was at 2.9 percent. This was below the inflation target of the Bangko Sentral ng Pilipinas (BSP) of 3 percent to 5 percent this year.

BSP Governor Amando M. Tetangco Jr. said the downward trend in price increases would allow the monetary authority to make necessary policy adjustments appropriate for sustaining the growth of the Philippine economy given the movements in major economies around the world, including the Philippines’s major trading partners.

Further, he said that with the central bank’s assessment of benign inflation, the BSP would have enough room for monetary policies to shield the country from the impact of price changes in international commodities.

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“This provides BSP room to make any further adjustments to policy stance, if needed, to address possible effects of changes in the growth trajectory of our main trading partners, including the US, Japan and China, and shifts in investor sentiment that could adversely impact the prices of international commodities and capital flows,” Tetangco said in a text message to reporters.

Excluding selected food and energy items, core annual inflation improved to 2.3 percent in July from 2.8 percent in June.

“That’s good for growth. It validates the current low-interest rate regime and should encourage more start-ups
away from parking funds,” Philippine Economic Society (PES) President Alvin Ang said.

University of Asia and the Pacific (UA&P) School of Economics Vice Dean Cid Terosa said the low-inflation environment would help boost consumption spending and cut the production costs of firms.

Consumption spending is an important part of the Philippine economy. For many years, the economy has been consumption-driven as spending easily accounts for 70 percent of the economy.

“A low-inflation rate environment makes the business and investment climate more predictable, boosting business and investor confidence. Hence, I expect the low-inflation environment to propel growth in the third quarter,” Terosa said. 

Ang said that while there are dangers to low inflation, the country’s current low-inflation regime is not a cause for concern. This is mainly because despite the low inflation, growth has been steady in many sectors.

Low inflation can sometimes indicate weak demand in the economy. But, Ang and Terosa agree that the country’s benign inflation could only be a factor to boost growth. 

“Low inflation can be due to weaker demand but as long as the economy is growing, a low-inflation environment is conducive to economic growth. If the economy is slowing down and demand is weakening, we should be worried,” Terosa said.

Socioeconomic Planning Secretary Arsenio M. Balisacan, who is also National Economic and Development Authority (Neda) director general, said last month’s inflation was mainly driven by the generally lower inflation rate of food products, particularly in the National Capital Region.

“According to the Bureau of Agricultural Statistics, [BAS] there were sharp reductions in the prices of vegetables in Metro Manila.  These include ampalaya, sitao, cabbage, carrots, Baguio beans, and white potatoes, while tomatoes posted slower price increases in July 2013 compared to the previous month,” Balisacan said.

According to the BAS, the average price of ampalaya was cheaper by 10.5 percent, sitao by 2.7 percent, cabbage by 31.5 percent, carrots 21.4 percent, Baguio beans by 23.6 percent, and white potato by 10.4 percent.  On the other hand, inflation rate for tomato slowed down to 15.1 percent in July 2013 from 21.7 percent in June 2013.

“Maintaining stable food prices complements our government’s strategy of significantly reducing hunger and poverty, so we can attain a more inclusive development,” said Balisacan said. He said even non-food items registered slower price movements last month, particularly under the commodity group of electricity, gas and other fuels whose average prices were cheaper last month compared to a year ago.

“The negative 1.8-percent inflation rate in that commodity group reflects the significant reduction in the generation charge of the Manila Electric Co. [Meralco] in July 2013 following the lower costs from suppliers,” Balisacan said.

Balisacan said the company’s generation charge in July 2013 was cheaper by P0.33 per kilowatt hour (kWh), or by 17.5 percent, and that this contraction was faster than the 7.8 percent registered in June 2013.  He also said the transmission charge also slightly decreased by P0.04 per kWh.

BSP Governor Amando M. Tetangco Jr. said the downward trend in price increases would allow the monetary authority to make necessary policy adjustments appropriate for sustaining the growth of the Philippine economy given the movements in major economies around the world including the Philippines’s major trading partners.

 Further, he said with the central bank’s assessment of benign inflation, the BSP would have enough room for monetary policies to shield the country from the impact of price changes in international commodities. 

“This provides BSP room to make any further adjustments to policy stance, if needed, to address possible effects of changes in the growth trajectory of our main trading partners, including US, Japan and China, and shifts in investor sentiment that could adversely impact the prices of international commodities and capital flows,” Tetangco said in a text message to reporters.  

The governor also expressed confidence the country’s inflation would be well within the government’s target range. The BSP’s target range for the full-year is at 3 percent to 5 percent. The target range is the same for the next year and at 2 percent to 4 percent in 2015.

 “As inflation expectations remain well anchored, we foresee inflation over the policy horizon to be within the government’s target range,” he said.