Price hikes taper down, 1.9% in Sept.

Inflation last month dropped to 1.9 percent from 3.3 percent in August as prices of food, fuels, and utilities fell, data from the Philippine Statistics Authority showed Friday.

The latest inflation figure softened after the 1.6 percent recorded in May 2020. It was also better than the estimates of the Bangko Sentral ng Pilipinas (BSP) at 2 to 2.8 percent and economists at 2.5 to 2.8 percent.

Main contributors to the lower overall inflation included food and non-alcoholic drinks at 1.4 percent inflation last month from 3.9 percent in August.

Specifically, rice prices slid to 5.7 percent from 14.7 percent amid the implementation of lower tariffs on imported rice.

Despite the recent typhoons, Department of Agriculture Assistant Secretary Arnel de Mesa added local rice supply remained at a sufficient level or not more than 500,000 to 600,000 metric tons of damaged harvests for the full year.

Transport prices also declined faster by 2.4 percent from 0.2 percent.

Meanwhile, housing, water, electricity, gas and other fuels were also cheaper at 3.2 percent inflation from 3.8 percent.

National statistics also showed a slower decline in prices of clothing, shoes, home equipment, restaurants, communication, education, hygiene products and education which mostly registered a decrease of 1 percentage point.

However, dairy and eggs were costlier at 4 percent inflation from 3.2 percent, along with fruits and nuts at 11.9 percent from 9.4 percent.

Seafoods and oils posted a slower decline by 1.2 percent and 1.4 percent from 3.1 percent and 2 percent, respectively.

Better than expected

“It wasn’t surprising, although we expected something higher,” Union Bank of the Philippines chief economist Carlo Asuncion said.

Apart from food, he said global oil prices helped pull down overall inflation.

“Food, particularly rice was on a downtrend, including global oil prices that were almost steady at $70 per barrel, down from $80 per barrel in July and almost $90/barrel in April,” Asuncion said.

Rizal Commercial Banking Corp. chief economist Michael Ricafort also said peso appreciation against the US dollar further reduced overall prices of imported goods.

“The peso exchange rate versus the US dollar has been among the strongest for the local currency in about six months,” he said.

For the rest of the year, Ricafort expects overall inflation to remain within 2 to 3 percent as global prices of most commodities stabilize due to increased manufacturing and lower interest rates for businesses overseas.

The economist expects the US Federal Reserve to ease its policy rate by another 50 basis points in the next few months after its meeting last month.

Although still weaker compared to other countries, Ricafort added China reported more active manufacturing last month.

China’s purchasing managers’ index inched up to 49.8 in September from 49.1 in August, although still below the expansionary mode at 50.

Ricafort expects the BSP to cut its own policy rate by another 25 basis points this month to maintain healthy levels of peso-US dollar exchange which can help drive robust consumption and business activities.

“This will tighten interest rate differential with the US to optimize monetary easing and support economic growth,” he said.