Inflation slows for first time in 2018

INFLATION eased for the first time this year in November to post the slowest rate in four months, helped by milder increases in food prices, the Philippine Statistics Authority (PSA) reported on Wednesday.

Headline inflation dropped to six percent last month from a nine-year peak of 6.7% in September and October, the PSA said yesterday. This, however, is still faster than the three percent clocked in November 2017.

The latest inflation pace is lower than the 6.3% median in a Business World poll last week that matched the Finance department’s estimate, but falls near the lower end of the 5.8-6.6% range given by the Bangko Sentral ng Pilipinas (BSP).

In a press briefing yesterday, National Statistician Lisa Grace S. Bersales noted “slowdowns” in the year-on-year increases of food and non-alcoholic drinks, which eased to eight percent in November from 9.4% in October; housing, water, electricity, gas and other fuels to 4.2% from 4.8%; and communication to 0.4% from 0.5%.

In particular, food inflation declined across the board. Rice prices rose by 8.1% overall in November, slower than the 10.7% pace clocked the preceding month. Increments of fish prices also eased to 12.5% from 13.8%, meat to 6.3% from 7.5%, and vegetables to 11.5% from 15.8%.

The looming replacement of quota restrictions for rice imports with regular tariffs, in effect liberalizing importation of the staple, is expected to cut retail prices by P7 per kilogram and headline inflation by as much as 0.85% next year.

Transport costs — which economists expected to pick up faster due to higher jeepney and bus fares which took effect in November — steadied at an 8.9% rise to match October’s pace. “For transport, you have several items there… Even if jeepney fare increased, all the others registered lower inflation increases,” Ms. Bersales explained.

Inflation of petroleum and fuels for personal transport eased to 19.8% in November versus 30.3% the preceding month, which helped offset faster increases in jeep and bus fares at 11.6% and 2.6%, respectively.

Domestic air fares posted a softer overall increase of six percent from 8.4% in October, according to PSA data.

Regulators on Monday announced a provisional rollback in base public utility jeepney fare in Metro Manila, as well as central and southern Luzon to P9 from P10 for the first 4 kilometers.

On the flipside, an additional P2 per liter increase in fuel excise taxes will take effect next month, although authorities have said that this will have a “minimal” impact on overall prices. BSP Governor Nestor A. Espenilla, Jr. said last week that this has already been factored in the central bank’s forecast for the coming year.

The PSA said November data affirms the “decreasing trend” in the inflation rate, with the month-onmonth pace even posting a 0.3% decline.

Ms. Bersales said this is the fastest monthly drop since February 2016.

Also yesterday, Mr. Espenilla said these numbers are “very encouraging,” as it confirms that inflation is on track to return to the 2-4% target by 2019 despite the big miss this year.

“Strong monetary action has significantly reinforced the anti-inflation process through the expectations route and a firmer peso. However, its more direct impact on economic activity will take a longer time to take hold,” the central bank chief said.

But he flagged the need to monitor core inflation — which strips out volatile food and energy prices — which has been picking up over the last few months. November core inflation climbed to 5.1% from 4.9%.

PSA noted that the increase in prices of widely used goods slowed across much of the country except Central Luzon, where it steadied at 4.4% from October.

Inflation dropped to 5.6% in Metro Manila from 6.1% in October, while overall price hikes similarly dropped to 6.2% from 6.8% in areas outside the National Capital Region.

Still, 10 of the country’s 17 regions bared above-average inflation, namely: Ilocos Region (eight percent), Cagayan Valley (seven percent), MIMAROPA (7.7%), Bicol Region (8.9%), Western Visayas (6.7%), Zamboanga Peninsula (7.2%), Northern Mindanao (6.9%), Davao Region (6.3%), SOCCSKSARGEN (6.9%) and the Autonomous Region in Muslim Mindanao (7.7%).

Michael L. Ricafort, economist at Rizal Commercial Banking Corp., said the “dramatic” drop in world crude prices from October’s three-year peak plus an appreciating peso made the case for softer inflation, together with improving food supply. “Thus, the deceleration in inflation rate could be sustained in the coming months, assuming all other factors are the same,” Mr. Ricafort said via e-mail.

Despite November’s slower pace, year-to-date inflation still clocked faster at 5.2%, short of the central bank’s 5.3% full-year forecast for 2018.

London-based Capital Economics said the latest inflation data gives the BSP space to keep benchmark interest rates steady at its Dec. 13 policy meeting, the last for 2018. This follows five rate hikes since May worth a total of 175 basis points (bp). “Our forecast is that inflation will drop back steadily over the coming months and return to the BSP’s 2-4% target range by around the middle of next year. If we are right, then further rate hikes by the central bank are unlikely,” said Alex Holmes, Capital Economics’ Asia economist.

Meanwhile, HSBC Global Research said that price pressures “have not completely dissipated” given a hike in minimum wages that took effect November as well as demand-side factors. In its view, the BSP may still consider a 25bp rate increase next quarter.