By Karen Lema and Mikhail Flores
MANILA (Multibagger) - In a significant development, Philippine annual inflation has accelerated at its slowest rate in more than four years in September. This can be attributed to a slower rise in food prices and a downtrend in transport costs, providing the central bank with ample room to cut interest rates further.
The latest data reveals that the consumer price index (CPI) rose by a mere 1.9% in September from a year earlier, marking the smallest increase since May 2020. This figure is notably lower than the previous month's 3.3% print and falls below the 2.5% forecast in a Multibagger poll.
Finance Secretary Ralph Recto has indicated that based on last month's data, inflation could potentially settle around 3.2% this year, well within the central bank's 2% to 4% target range.
"This gives the BSP more room to be aggressive in its monetary policy easing to help the economy grow at a faster rate and support the government in increasing its revenue collections," Recto stated in a release.
The BSP, in its recent statement, highlighted that inflation is expected to trend downwards in the coming quarters, primarily due to easing supply pressures from food and base effects from higher consumer prices in the previous year.
Core inflation, which excludes volatile food and energy prices, also decelerated to 2.4% in September from 2.6% in August. The deceleration in food inflation last month was mainly driven by a significant slowdown in rice price increases to 5.7% from 14.7% in August, owing to base effects and the impact of reduced tariffs.
The central bank, which had cut its policy rate by 25 basis points to 6.25% in August – the first reduction in nearly four years, is set to convene on Oct. 16 to decide on the direction of interest rates. BSP Governor Eli Remolona has hinted at the possibility of two 25 basis point cuts, one in October and another in December, given the easing trend in inflation.
Analysis:
The recent slowdown in Philippine inflation is a positive sign for the economy as it gives the central bank more room to implement aggressive monetary policy easing measures. With inflation expected to remain within the target range, the BSP can focus on stimulating economic growth and supporting government revenue collections. For consumers, this could translate into lower borrowing costs and increased spending power. Investors may also benefit from potential market rallies as interest rates are poised to decline, making equities and other assets more attractive. Overall, the outlook for the Philippine economy appears favorable in light of the recent inflation data.