DOF sees inflation easing to 6.5% in October

The Department of Finance (DOF) estimated that inflation likely slowed down last month following the decrease in retail costs of Filipinos’ staple food.

Based on the DOF’s latest economic bulletin, Finance Undersecretary Gil S. Beltran said that October inflation may have eased to 6.5 percent from its nearly a decade high of 6.7 percent in the previous month. This could also mean that the rate of increase in consumer prices could have already peaked in September.

“This development comes as food prices start to stabilize: Rice harvest season starts, rice imports by NFA (National Food Authority) and the private sector have started to come in and the vegetable industry has partly recovered from the prior month's severe weather disturbances,” Beltran said.

However, the DOF’s October forecast is significantly higher compared with 3.1 percent in the same month last year.

Beltran, however, believes inflation will further soften in the last quarter as government measures aimed at easing the price increases start to take effect.

“Other administrative streamlining measures signed by President Duterte to boost food supply are underway,” Beltran said.

Month-on-month, consumer price index (CPI) in October may have slumped to 0.05 percent from 0.8 percent in the previous month, said Beltran, who is also the DOF’s chief economist.

The month-on-month decrease in electricity rates helped temper the rise in fuel prices, he added.

Meanwhile, Beltran said that domestic pump prices of diesel and gasoline peaked during the month, but the Iran sanctions still threaten to push up international crude oil prices anew.

Last week, the Bangko Sentral ng

Pilipinas (BSP) said that inflation likely hit as high as seven percent in October.

The BSP’s economic research department projected that inflation last month may settle within the 6.2 percent to seven percent range, corresponding to a monthon-month inflation forecast band of 0.2 percent to 0.6 percent.

Based on the BSP report, the projection is in line with the central bank’s assessment that inflation likely peaked in the third quarter “in the absence of further price shocks.”

The BSP explained that upward price pressures from elevated local pump prices and higher water rates could be offset by lower food prices and downward adjustment in electricity rates in areas served by power distributor Manila Electric Co., the largest in the country.

The inter-agency Development Budget Coordination Committee had already adjusted its inflation forecast for 2018 to a range of 4.8 percent to 5.2 percent. For 2019, the forecast is raised to three percent to four percent while from 2020 to 2022, it is still at two percent to four percent.

The headline inflation in September increased to 6.7 from 6.4 percent in August and three percent in the same time in 2017. Year-to-date, inflation averaged at five percent, exceeding the two percent to four percent target.

A Reuters poll of 10 analysts also indicated that inflation likely eased for the first time in 10 months in October, reducing the need for another aggressive action from the central bank when it reviews monetary policy on November 15. The CPI is seen rising 6.5 percent in October from a year earlier, based on the median forecast in a survey of 10 analysts, slowing from September's rate, which was the fastest since 2009.

Six analysts estimated slower rates, one as low as six percent, while the rest gave projections of between 6.7 percent and 6.9 percent. The median forecast is at the middle of the BSP’s projected range of 6.2 percent to seven percent for the month.

Lower food and energy prices, and the peso's rebound from 13year lows versus the US dollar may have helped reduce inflationary pressures, some analysts said. They said inflation likely peaked in the third quarter, as the BSP had projected, but would remain elevated in the fourth quarter.

A slower inflation in October could still prompt the BSP to raise interest rates at its November 15 meeting but at a less aggressive pace than its last two rate raises, or it may pause after four hikes totalling 150 basis points (bps) since May, they said.

The BSP projected average inflation of 5.2 percent this year, well above its two percent to four percent target range. (CSL with Reuters)