Inflation falls below 2% for first time in over four years

By Luisa Maria Jacinta C. Jocson, Reporter

Headline inflation sharply slowed to an over-four year low in September as food and transport costs declined, giving the Philippine central bank space for further policy easing.

The consumer price index (CPI) slowed to 1.9 % year on year in September from 3.3% in August and 6.1% a year ago, the Philippine Statistics Authority (PSA) reported on Friday.

This was below the Bangko Sentral ng Pilipinas’ (BSP) 2%-2.8% forecast for the month. It was also lower than the 2.5% median estimate yielded in a BusinessWorld poll of 15 analysts conducted last week.

The September print was the slowest in over four years (52 months) or since the 1.6% print in May 2020.

In the first nine months, headline inflation averaged 3.4%, which is also the central bank’s full-year forecast.

Core inflation, which excludes volatile prices of food and fuel, eased to 2.4% in September from 5.9% a year ago. Core inflation averaged 3.1% in the January-September period.

National Statistician Claire Dennis S. Mapa said slower inflation was driven mainly by the heavily weighted food and non-alcoholic beverages index, which decelerated to 1.4% in September from 3.9% a month earlier and 9.7% a year ago.

The index accounted for a 69.1% share to the downtrend in inflation, he added.

Broken down, food inflation slowed to 1.4% from 4.2% in August and 10% in the previous year.

Cereals and cereal products, which includes rice, was one of the main contributors to this slowdown, easing to 4.9% from 11.5% a month ago and 14.1% a year prior.

Rice inflation sharply slowed to 5.7% in September from 14.7% in August and 17.9% last year. This also marked the lowest rice inflation since the 4.2% print in July 2023.

Mr. Mapa said the lower rice prices were due to base effects and the impact from the tariff cut on rice imports.

An executive order, which slashed tariffs on rice imports to 15% from 35% until 2028, took effect in July.

“There are decreases month-on-month since July. We are seeing a drop in the nominal price, but not substantial,” he added.

PSA data showed that the average price of regular milled rice dropped to P50.47 per kilogram in September from P50.90 in July; while well milled rice declined to P55.51 per kilo from P55.85 in July. The average price of special rice decreased to P64.05 from P64.42 in July.

The vegetables, tubers, plantains, cooking bananas and pulses index also contributed to lower food inflation, as it sharply contracted by 15.8% in September from the 4.3% decline a month ago.

Meanwhile, transport inflation posted a faster annual decline at 2.4% in September from the 0.2% drop in August.

Diesel inflation contracted by 19.6% from the 8.4% decline a month prior while gasoline inflation fell to 13.8% from the 5.8% decrease in August.

In September, pump price adjustments stood at a net decrease of P0.95 a liter for gasoline, P2.10 for diesel and P2.35 for kerosene.

Mr. Mapa also noted slower inflation in the housing, water, electricity, gas and other fuels index, which eased to 3.2% in September from 3.8% a month ago.

This was primarily due to liquefied petroleum gas prices, which eased to 10% from 17% in August.

Despite a hike in power rates in Metro Manila, electricity inflation slowed to 2.5% from 3.2% a month ago. Manila Electric Co. (Meralco) raised the overall rate by P0.1543 per kilowatt-hour (kWh) to P11.7882 per kWh in September from P11.6339 per kWh in the previous month.

Meanwhile, PSA data showed the inflation rate for the bottom 30% of income households slowed to 2.5% in September from 4.7% in August and 6.9% a year prior.

In the nine months to September, the inflation rate for the bottom 30% averaged 4.6%.

In the National Capital Region (NCR), inflation eased to 1.7% in September from 6.1% a year earlier. Inflation in areas outside NCR averaged 2%, also much slower than 6% a year ago.

MORE SPACE FOR POLICY EASING
National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan said that inflation is expected to further ease in the coming months.

“The continued slowdown in inflation is expected to boost consumer confidence, driving higher spending and consumption and fueling business expansion,” he said in a statement. “Additionally, easing food prices will relieve low-income households, enabling them to allocate more to other essential needs such as education and health.”

Finance Secretary Ralph G. Recto said that full-year inflation may settle at 3.2% as the decline in rice prices becomes more pronounced in the next few months.

Global rice prices are expected to go down after India’s decision to lift its export ban on non-basmati white rice.

“The relatively slower and easing trend in inflation could be sustained, though with slight upticks to 2% levels, barring geopolitical risks and adverse weather conditions, in view the seasonal increase in demand towards the end of the year in view of increased holiday-related spending,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in an email.

Pantheon Macroeconomics in an email note said that inflation may pick up slightly in the coming months.

“This extremely favorable drag on food — and, by extension, headline — inflation will reverse partially in the October report, sending the latter back into the BSP’s 2-to-4% target range, albeit only a touch above the lower bound, where we expect it to remain for the foreseeable future,” Pantheon Macroeconomics said.

BSP Governor Eli M. Remolona, Jr. told Bloomberg on Thursday that inflation is expected to settle firmly within the 2-4% target band this year.

He also said that the central bank will likely deliver rate cuts in increments of 25 basis points (bps).

The BSP chief said that there is a chance for a 25-bps cut at the Monetary Board’s Oct. 16 policy review, followed by another on its last meeting for the year on Dec. 19.

Mr. Recto said that the latest inflation print now gives the central bank space to further reduce policy rates.

“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,” he said.

Pantheon likewise said that the lower-than-anticipated September print “effectively guarantees another BSP cut this month.”

“In terms of monetary policy, we continue to believe that the Board will cut by a further 25 bp at its meeting this month, before stepping up the pace of easing to 50 bp each time from December until the target reverse repo rate falls to a terminal level of 4.00%,” it said.

Mr. Ricafort said that the BSP could possibly cut rates by 50 bps at its October meeting to match the latest Fed cut.