AS expected, price increases of major commodities and services slowed down in April as key cities in the country remain under enhanced community quarantine resulting in weaker economic activities.
The Philippine Statistics Authority (PSA) yesterday said the headline inflation at the country level settled at 2.2 percent, slower than the 2.5 percent annual increase in March.
In April 2019, inflation was higher at 3.0 percent.
PSA said the downtrend in the headline inflation was the further decrease in the annual rate of transport index at 6.1 percent, the first time the index posted a deflation since 2015.
In addition, slower annual mark-ups were seen in the indices of alcoholic beverages and tobacco; clothing and footwear; housing, water, electricity, gas and other fuels; health; communication; and restaurant and miscellaneous goods and services.
The index of the heavily-weighted food and non-alcoholic beverages posted a higher annual increment of 3.4 percent.
Core inflation, meanwhile, continued to move at a slower rate at 2.8 percent, from 3.0 percent in March.
PSA further reported that inflation in the National Capital Region (NCR) eased further to 1.2 percent in April, from 1.7 percent in the previous month. Inflation in areas outside NCR also decelerated further to 2.5 percent from 2.7 percent.
Nine regions exhibited lower inflation during the month, with Region X (Northern Mindanao) maintaining the lowest inflation at 1.4 percent. Meanwhile, the highest inflation was still observed in Region XII (Soccsksargen) with an annual increment of 3.6 percent.
Year-to-date inflation for this year now stands at 2.6 percent, at the low end of the Bangko Sentral ng Pilipinas’ (BSP) full-year target range of between 2 and 4 percent.
Benjamin Diokno, BSP governor, said the latest inflation number is “consistent with the BSP’s prevailing assessment that inflation is expected to be benign over the policy horizon due to the adverse impact of the coronavirus pandemic on the domestic and global economy.”
“The latest baseline forecasts indicate that inflation could settle at 2.0 percent for 2020 and 2.5 percent for 2021,” Diokno said.
“In addition to the monetary policy actions that have been announced, the BSP stands ready to deploy any available measures in its toolkit as we continue to assess the impact of coronavirus pandemic on the domestic economy,” Diokno added.
The Monetary Board has reduced the key rates of the BSP thrice this year; the latest was an off-cycle move last month. The key rates now stand at a record low of 2.75 percent.
Diokno said the domestic economy will likely “follow a U-shaped recovery path.”
“Growth is expected to bounce back to its potential output growth in 2021 supported by the measures under the government’s recovery plan. The BSP reiterated its support for urgent and carefully coordinated measures with other government authorities to ease the spillover effects of the pandemic on people and firms, with a view towards preventing any long lasting economic and social damage,” Diokno added.
But Nicholas Mapa, ING Bank senior economist, said the BSP is not expected to “react aggressively to the slowing inflation.”
“Despite the slower inflation print, we do not expect the central bank to resort to additional aggressive policy rate cuts in the near term. BSP has offloaded a hefty 125 bps worth of rate cuts for 2020 and Diokno did hint at pausing momentarily to gauge the impact of previous rate cuts before acting further,” Mapa said.
He said they expect only a 25 basis point policy cut if ever BSP opts to ease further as the policy rate edges closer to BSP’s own inflation forecast of 2.2 percent for the year.
“Price pressures appear to be on the downtrend with demand side pressure and the oil factor weighing on overall headline inflation. We expect inflation to be subdued for a month after the end of the lockdown but we also foresee a steady acceleration in price pressures in the second half of the year as supply side pressures outweigh the demand side pull,” he said.
“Accelerating inflation in the third quarter, the period of least favorable base effect in 2020, is another reason for BSP to manage further policy rate cuts and reduction to reserves and we expect only marginal easing from here with fiscal stimulus kicking in to support the economy,” he added.
