The latest inflation print is lower than the market consensus averaging only 1.1 percent.

Inflation last month slipped to its lowest level in more than three years and continued to fall below the government’s two to four percent target range.

The Philippine Statistics Authority (PSA) announced on Friday that headline inflation for September cooled further to 0.9 percent from the 1.7 percent recorded a month prior and the 6.7 percent recorded in September last year. This was the lowest level since June 2016 when inflation stood at 1.3 percent.

The latest reading brought year-to-date inflation to 2.8 percent.

At a news briefing, national statistician Dennis Mapa attributed the figures to the slower increases in the prices in food — particularly rice and corn — as well as in non-alcoholic beverages.

As a result of the rice tariffication law, the rice index plunged for the fifth straight month by 8.9 percent from 5.2 percent, coming from a high base in 2018 when rice prices soared amid the lack of supply. It was also the biggest drop since 1995.

As of the second week of September, prices of regular milled rice were sold at a retail price of P37.79/kilogram (kg), while well-milled rice retailed at P42.27/kg. These were way higher than the P27/kg. projection of economic managers.

In a statement, the Bangko Sentral ng Pilipinas (BSP) said the September inflation was driven by the continued decline in rice prices and electricity rates which offset higher prices of petroleum and select food products.

It maintained its assessment that inflation will continue to decelerate in the third quarter of the year and slightly pick up in the remaining months of 2019.

“The BSP continues to expect average inflation to firmly settle within the target range of (2-4 percent) for 2019 to 2021,” it said, adding that the recent volatility in global crude oil prices could generate upward price pressures over the near term.

Looking ahead, ING Bank senior economist in Manila Nicholas Mapa projects softer price increases as the countdown to the long Yuletide season in the country unfolds.

In a separate comment, Albay 2nd District Rep. Joey Salceda said he expects inflation figure for the months of November and December to go up to 1.2 percent and 1.9 percent, respectively, on account of the incremental demand growth from the reduction in policy rates and reserve requirement ratio coupled with higher government spending to catch up on the five-month delay in the passage of the 2019 national budget.

The latest inflation print is lower than the market consensus averaging only 1.1 percent.

Analysts said the sub-one percent inflation benefitted from the so-called base impact and projects if impact to fades in the coming months.

Sun Life of Canada Philippines chief investment officer Michael Enriquez noted the “high base” figure last year that influenced the inflation print in September.

“We might see a higher inflation figure for October since the September figure was influenced by the high base last year,” Enriquez said in a text message.

Mapa expressed the same sentiment, noting the significant contribution of lower food prices to the latest inflation outcome.

“Philippine inflation continued to head south as base effects hit home. Mirroring last year’s inflation peak of 6.7 percent, the September print dropped to 0.9 percent with the index heavy food basket weighing mightily on headline inflation,” Mapa said.

“(However,) inflation will likely revert to target once base effects fade. Price pressures appear to be benign as food prices are expected to be more stable given new legislation and government’s openness to importing food stuff,” he added.

Standard Chartered Bank economist Chidu Narayanan said inflation is close to bottoming out and will rise again by year end starting in November.

BSP said: “The latest inflation outturn is likewise consistent with the BSP’s prevailing assessment that inflation will continue to decelerate in the third quarter 2019 and pick up slightly in the remaining months of 2019,” it said.

With 2019 inflation closing in the government’s lower end target, various economists bared the possibility of further easing in the BSP’s key monetary policy.

Union Bank of the Philippines chief economist Carlo Asuncion said the lower than expected print provides additional legroom for the central bank to unwind its key interest rate, which now stands at 4 percent.

“This somehow gives the BSP a potential window to further cut monetary policy rates toward the end of this year. We’re expecting 25 basis points,” Asuncion said in a text message.

Sunlife’s Enriquez shared the same view, saying a similar reduction would manifest in the final three months this year.

“We can expect the BSP to continue with its dovish stance on interest rates. We might see more policy rate cuts. One more for the fourth quarter, another 25 basis points this year,” the analyst said.

Likewise, Mapa said with the current economic environment, “The BSP is afforded scope to ease policy rates further,” and noted the majority of its price objective remain “well in hand.”

Earlier, the BSP reduced its key policy rates by 25 basis points while consecutively lowering the banks’ reserve requirement ratio by another 100 basis points, bringing fresh liquidity to the financial system and boosting local output expansion in the process.

In terms of risks to the inflation outlook, Asuncion said possible risks remain largely on the outside as majority of domestic issues, such as high rice prices, have already been addressed.