July inflation falls to 22-year low at 0.2%

MANILA, Philippines - The inflation rate slowed to 0.2 percent in July, the lowest level in 22 years, as price increases in key sectors such as food and beverages continued to ease.

The National Statistics Office (NSO) reported yesterday that the latest inflation figure was sharply lower than the 12.2-percent inflation rate posted for the same month last year when the country was reeling from the high prices of oil and rice. It was also lower than the 1.5-percent rate posted in June.

The July figure was the lowest since March 1987 when the inflation rate fell to 0.6 percent.

It was the fifth straight month of decline in consumer prices, but analysts said prices may have now reached bottom and could start inching up in coming months.

The core inflation rate, which strips out some volatile food and energy items, eased to an annual growth rate of 3.6 percent in July from 3.9 percent in June.

Bangko Sentral ng Pilipinas (BSP) Governor Amado M. Tetangco Jr. earlier said prices of goods could have fallen to negative 0.3 percent in July driven by easing global oil prices, which reached a peak of $140 a barrel for Dubai crude.

The July inflation was within the BSP’s forecast for the month of –0.3 to 0.6 percent.

Tetangco said the drop was also due to the ‘’base effects’’ from high oil prices last year.

NSO said all major commodity groups recorded a marked slowdown in price movements.

Inflation for food, beverages and tobacco slowed to 1.6 percent from 3.1 percent; clothing, 2.3 percent from 2.5 percent; housing and repairs, 2.4 percent from 2.8 percent; and miscellaneous items, 2.6 percent from 2.8 percent. Fuel, light and water and services index correspondingly recorded a rate of -4.8 percent and -3.8 percent in July from -5.4 percent and -1.1 percent in June, respectively.

The BSP uses the consumer price index (CPI) or headline inflation as its target for monetary policy.

UBS economist Edward Teather said in a report that the Philippines could experience the “low point” in July along with Thailand.

“Consumer price inflation is close to bottoming out in Southeast Asia, absent any sudden declines in commodity prices. Nonetheless, inflation is still subdued, with monthly changes in the CPI still below historical averages in second quarter 2009 across ASEAN. This means central banks are able to keep monetary policy loose for now, even if recovering growth has largely eliminated the need for further policy easing,” he added.

However, Teather warned the El Niño phenomenon would put pressure for prices of goods to go up as this can temporarily shock agricultural economy. He cited the Philippines, Thailand and Indonesia as “most exposed.”

The Development Bank of Singapore (DBS) expected a benign reading would not be sufficient cause for the Bangko Sentral to cut its policy rates further.

“While the Philippines’ inflationary outlook is not exactly alarming – we have a full-year inflation forecast of 3.1 percent for this year, and 3.3 percent for 2010 - focus within the central bank seems to have shifted [prudently] to the risks of holding interest rates too low for too long,” DBS said.

The bank expects the BSP to keep rates steady in its monthly meeting in Aug. 17.