DoF: 2-4% inflation likely next year

The Department of Finance is optimistic that the government can achieve its inflation target for next year which ranges from two to four percent.

"The inflation rate is coming down, so we're on target," Finance secretary Benjamin Diokno told Reuters in an interview on 9 November in New York.

Inflation rate dropped to 4.9 percent in October from 6.1 percent in September partly due to lower food prices, according to the Philippine Statistics Authority.

Top disinflation drivers

Rice, a main growth driver of September inflation, emerged the second biggest contributor to slower food inflation last month at 13.2 percent growth from 17.9 percent. The top disinflation drivers were vegetables, tuber and bananas.

Diokno said the government has implemented measures to keep the inflation downtrend, while stressing that food inflation remains sticky.

"We have adopted several measures — food and non-food–and it's mostly the food items that are still out of the range," Diokno said.

Lingering risks

Economic managers said risks from El Niño linger as the weather bureau projects the dry weather to last until the first quarter next year, threatening lower agricultural supply which then induces faster inflation.

To ensure cheaper food, economic managers are proposing to the Executive Department to extend the implementation of Executive Order 10 which lowers tariff rates on agricultural imports, including rice. This policy is effective until the end of December.

Diokno had also told the media the government is open to a review of the Rice Competitiveness Enhancement Fund or RCEF for possible tariff reduction on rice imports to prevent supply shortage.

RCEF tariff on rice imports

RCEF imposes a 35 percent tariff on rice imports from fellow members of the Association of Southeast Asian Nations but removes quota on import volumes. It is effective until June next year.

Bangko Sentral ng Pilipinas governor Eli Remolona Jr. said its Monetary Board is still considering imposing high interest rates to restrain consumer spending as a measure to control inflation.

"The Monetary Board deems it necessary to keep monetary policy settings sufficiently tight until inflationary expectations are better anchored and a sustained downward trend in inflation becomes evident," he said.

"Accordingly, the BSP is prepared to undertake follow-through monetary policy action as necessary to prevent supply-side pressures on prices," the BSP chief added.

BSP inflation projection

BSP projects inflation could settle at 4.7 percent next year based on its Monetary Board meeting last 26 October.

Meanwhile, external analysts see it at 4.1 percent.

The central bank will announce whether to keep its policy rate steady at 6.5 percent or any adjustment on 16 November.