LOCAL economic managers described the inflation development on Wednesday as “comforting” and “encouraging,” as the report on the consumer price growth finally showed a slowdown in November this year.
The Philippine Statistics Authority (PSA) released the November 2018 report on inflation on Wednesday, saying the growth of consumer prices went down to 6 percent in November this year.
This is the first monthly inflation slowdown for the year after months of consecutive acceleration in inflation since January 2018.
November’s print is a significant deceleration from the 6.7 percent in October this year, but still higher than the 3-percent inflation seen in the same month last year.
The PSA also said this is the first time month-on-month inflation hit a negative at 0.3 percent since February 2016.
Inflation in 2018—which is now at an 11-month average of 5.2 percent—rose significantly from the within-target 2.9-percent average in 2017 due largely to a confluence of factors, including rice-supply issues, lingering tax-reform effects, higher global prices and a weaker currency, among others.
Inflation busters
This prompted local economic managers to deploy several measures to pull the stubborn inflation back to the 2 to 4 percent target range for next year at least.
“The November headline inflation at 6 percent is very encouraging. For the first time we are seeing significant negative month-on-month growth after inflation plateaued at around 6.7 percent,” Bangko Sentral ng Pilipinas Governor Nestor A. Espenilla Jr. said.
Also, the Department of Finance (DoF), Department of Budget and Management (DBM) and the National Economic and Development Authority (Neda) said in a joint statement that they are “pleased” with the slowdown, which indicates the “efficacy of the anti-inflationary measures” taken by the government.
“It is comforting for us that the slowdown will alleviate the struggles of poor Filipinos, especially now that the holiday season is just around the corner,” the joint statement read.
Chief Presidential Legal Counsel and Presidential Spokesman Salvador S. Panelo also welcomed the development, attributing the slowdown to the “President’s empathy to public clamor” and his “decisive action” in response.
Earlier this year, President Duterte issued Administrative Order 13 to remove nontariff barriers and streamline administrative procedures on the importation of agricultural barriers to ease food inflation.
From the legislative side, House Speaker Gloria Macapagal-Arroyo also said she was “very happy” to hear about the easing inflation, further saying that the moral of the story is to immediately increase supply as soon as supply-side inflation is detected.
Two of the top 3 inflation influencers showed a significant decline in November, thus bringing overall inflation to a deceleration during the month.
In particular, the PSA said in its briefing on Wednesday that inflation on the heavily weighted food and nonalcoholic beverages went down from 9.4 percent last month to 8 percent this month on account of lower prices of rice, corn, fish, meat, fruits, vegetables and other sugar-based items.
Housing, water, electricity, gas and other fuels also declined to 4.2 percent on lower rental prices, declines in the fees of electricity, LPG and kerosene during the month.
However, transport prices—the third-largest mover of inflation during the month—showed mixed movements as prices of petroleum and other fuels, as well as domestic airfares, declined during the month while jeepney, tricycle and ferry ship fares rose for the month.
This puts the transport inflation at 8.9 percent, retaining its print from the previous month.
Nonmonetary-policy measures
Economic managers were, in particular, pleased to hear about the marked deceleration of food inflation during the month and vowed to continue implementing policies to ease food prices further in the coming months up until 2019.
In particular, the DBM, DOF and Neda said it is important to continue working on including the assurance of the timely arrival of rice imports to compensate for the lost palay harvest in the third quarter of the year.
“With the recent passage of the rice tariffication bill in Congress, we expect rice prices to go down further still. But this measure, which opens the rice market to qualified players, should be coupled with the full operationalization of the National Window System to allow seamless imports processing and to avoid unwarranted delays,” the joint statement of the three departments read.
Economic managers also called on the Department of Agriculture to fast-track the pending release of the Fisheries Administrative Order 259 to allow the importation of frozen fish and fishery aquatic products for wet markets during closed and off-season or during the occurrence of calamities.
In terms of transport prices, economic managers defended their decision to withdraw the previously announced suspension of the second tranche of increase in fuel excise tax starting January 2019 on account of several price rollbacks in oil prices. They also cited the Land Transportation Franchising and Regulatory Board’s decision on the provisional decrease in the minimum fare for public-utility jeepneys from P10 to P9 in the National Capital Region, Regions 3 and 4.
“Managing inflation expectations, however, is crucial. We ask the business sector to avoid any unwarranted price increases as experienced during the rollout of the first tranche of fuel excise tax increase,” the economic managers said.
Monetary-policy implication
BSP Governor Nestor A. Espenilla Jr. also vowed to keep an eye on inflation expectations, all while keeping his still hawkish stance amid the several rate hikes down for the year.
According to the governor, their 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. There’s need to pay close attention to the core inflation trend which continue to rise through November at 5.1 percent,” Espenilla told reporters following the PSA’s inflation announcement on Wednesday.
“Monetary policy will need to stay vigilant to keep inflation under firm control amid expected strong economic growth,” he added.
Espenilla also said that the 6-percent inflation rate “confirms” that inflation is heading back to the 2-4 percent target range for 2019.
In their latest monetary policy meeting, the BSP said they are looking at inflation to average at 3.5 percent for 2019 and at 5.3 percent for this year.
However, ING Bank Senior Economist Nicholas Mapa said that although Espenilla reiterated a firm watch over inflation, a continued deceleration of price growth could actually revert the BSP’s tightening cycle next year.
“[…] should inflation continue to show this kind of stark deceleration over the next few months, we now open up the possibility of a reversal in BSP’s stance as early as the second quarter of 2019. On top of BSP’s widely projected 200-basis-point cut to reserve requirements, the BSP may opt to slash borrowing costs as early as the second quarter of 2019 not only because of slowing inflation but also because Philippine economic growth is expected to slow in the fourth quarter of 2018 and first quarter of 2019,”
Mapa said.
Mapa also said that the BSP will watch the US Federal Reserve’s stance, with market expectations now showing only two more Fed rate hikes until the end of 2019.
“If a confluence of decelerating inflation, slower GDP and a dovish Fed align, the chances for a BSP two-pronged easing increases significantly,” Mapa said.
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