Inflation seen at new record low this month

Inflation will likely hit a fresh record-low this month as the rise in food prices continued to be tamed by declining transportation and energy costs, the chief economist of the Department of Finance has forecast.

The rise in consumer prices may settle at 0.5 percent in September, slowing further from August’s 0.6 percent and July’s 0.8 percent, Finance Undersecretary Gil Beltran said in an economic bulletin last Thursday.

Once realized, it will mark the third time this year the inflation rate fell below one percent.

The government has set a two- to four-percent target this year. As of August, inflation averaged at 1.7 percent.

“The slow rise in prices is tempered and will continue to be tempered by tamed food price changes,” Beltran said.

“Low prices of other basic commodities such as fuels and transportation continue to benefit from developments in the international market,” he added.

Among commodity groups, prices of the heavily-weighted food and non-alcoholic beverages likely went up 1.1 percent, slower than the previous month’s 1.2 percent. Food accounts for about 39 percent of the consumer price index.

Three groups will likely post price declines this month led by housing, utilities and fuels group which on average could see prices down 2.3 percent. In August, costs dipped by a slower 1.7 percent.

Transport prices are also expected to dip by a faster 0.8 percent, while their communication counterparts will slide 0.1 percent, Beltran said.

According to the Department of Energy, diesel and cooking gas prices decreased by P2.64 per liter and P10.60 per kilogram as of Sept. 15. Gasoline prices barely inched up by P0.76 from last year.

Beltran said the phenomenon is still driven by plunging oil prices in the world market, where the commodity tumbled by about a fifth from its peak last June. The same situation has affected electricity prices.

“Meralco (Manila Electric Co.) electricity rates have been slashed for five months in a row. For September, rates are 17 percent less than that of last year,” he said.

The Bangko Sentral ng Pilipinas (BSP) comes out with its own monthly inflation forecast every last week of the covered month. The BSP, as the country’s central bank, monitors inflation as part of its price stability mandate.

During its last policy meet- ing on Aug. 13, the BSP kept its key interest rates unchanged at four percent and six percent. The policy rates are used by banks as benchmarks for lending and borrowing.

Analysts have called on the BSP to lower rates as inflation trended downwards to allow more depositors to borrow at cheaper costs. But the central bank said risks abound as the El Niño phenomenon hits the country.

Beltran agreed. “Measures should be in place in order to address adverse effects the dry spell would inflict on agricultural production and hydro-electric power generation,” he said.

“It is important that the gains in taming food inflation not be undermined by the impending El Niño phenomenon,” he added.