(UPDATE) Dec inflation slows, BSP open to more rate cuts
Judith Balea, abs-cbnNEWS.com | 01/06/2009 10:01 AM
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Despite the seasonal price spike during the holidays, annual inflation in the Philippines eased to its lowest in nine months in December, largely due to falling oil costs, the government said Tuesday.
Data from the National Statistics Office (NSO) showed inflation came in at a lower-than-expected 8.0 percent in December, its fourth straight month of decline.
The latest figure was below market estimates of 8.8 percent in a Reuters poll last week and the Bangko Sentral ng Pilipinas' (BSP) forecast of 8.6-9.5 percent.
In November, annual inflation was at 9.9 percent.
Core inflation, which strips out some volatile food and energy items, fell to 7.3 percent in December from 7.9 percent in November, indicating that "inflationary pressures are easing."
The NSO said the continued reductions in the prices of fuel nationwide, along with adjustments in electricity rates and lower prices of main food items like rice, corn and vegetables, contributed to the overall decline in the inflation rate last month.
High inflation average
For the full year 2008, inflation averaged at 9.3 percent, within the government's official target of 9.0-11 percent, but way higher than the 2.8 percent recorded in the year before.
The last time that Philippine inflation touched the 9 percent level was in 1998 when it also settled at 9.3 percent.
Last year's high inflation average was brought about by soaring prices of food and oil in the first eight months.
World crude skyrocketed to almost $150 a barrel in July, which had a knock-on effect for local transport and food costs. By August, annual inflation hit a 17-year high of 12.5 percent.
Inflation, however, started to ease in September, thanks to the rapid drop in oil prices from their peak to under $50 now amid the global economic downturn.
"Given the shocks to inflation this past year, the target for 2009 will fall within the Development Budget Coordination Committee forecast of 6.0-8.0 percent," National Economic and Development Authority director Raplh Recto said in a statement.
"Nevertheless, inflation is expected to return within target rates in 2010," he added.
Rate cuts
Reacting to the latest inflation figures, BSP governor Amando Tetangco said the central bank would consider further cuts in its benchmark interest rates.
"As inflation risks, particularly from food and fuel prices, continue to recede, we will carefully consider opportunities for monetary easing, mindful of potential tightening financial conditions," he noted in a mobile text message to reporters.
Analysts said the central bank could lower its policy rates by as much as 50 basis points at its next policy meeting on January 29 to spur domestic demand in the wake of recession in major Philippine export markets.
"I don't think at this point inflation is the thing to worry about, it is really growth," said Luz Lorenzo, economist at ATR Kim-Eng Securities. "The challenge is how to loosen monetary policy without putting the financial system at risk."
Others cautioned that while consumer prices have generally slowed, there were still inflation risks ahead with the Philippines' high dependence on rice imports and geopolitical concerns weighing on oil prices.
"On balance, though, it is apt to conclude that the overall disinflation trend will be supported by broad-based price trends as well as the sharp fall in price pressures in large regional economies such as China, even though some red-flags to the inflation landscape will remain," said Vishnu Varathan at Forecast Pte.
"It is easy to see the policy priority must, at this juncture, be aligned to spurring growth more than combating the shadows of hazards to price-stability."
The government expects the economy to remain sluggish this year, with growth expected at 3.7 to 4.7 percent from a likely 4.6 percent expansion in 2008 on lackluster exports and an anticipated slowdown in remittances, which power consumption.
Growth reached a 31-year peak of 7.2 percent in 2007. With Reuters, AFP
