January inflation slows; March rate cut seen

MANILA, Philippines -  Inflation slowed to below four percent for the first time in more than a year, bolstering hopes the Bangko Sentral ng Pilipinas (BSP) will deliver a second quarter-point cut at its March 1 meeting to shield the economy from the global downturn.

Annual headline inflation in January was 3.9 percent, slowing from the previous month’s rate of 4.2 percent, based on a new series using 2006 prices.

“This supports our view that inflation remains manageable over the policy horizon, and affirms we continue to have policy space, should the need to support growth persist,” BSP Governor Amando M. Tetangco Jr. said in a mobile text message to reporters.

The central bank had forecast January inflation to be between 3.6 percent and 4.5 percent.

Tetangco also said the central bank was watching developments overseas and locally, particularly on how events may impact inflation.

“We will be watchful of developments, particularly the weather-related events in the Visayas, to see their impact on the food supply chain. We will also continue to monitor global developments and their impact on our own domestic inflation dynamics,” he added.

The Bangko Sentral ng Pilipinas cut its key policy rate by 25 basis points to 4.25 percent in January, the first cut in 2 1/2 years, and will review rates again in March.

An uncertain outlook for the global economy coupled with sluggish exports will strengthen the case for a another rate cut in March, especially with inflation slowing, analysts said.

“Aside from this better-than-expected print, there are a number of reasons for the BSP to cut rates in March,” said Jun Neri, economist at Bank of the Philippine Islands.

“Clearly, they need to boost demand further, particularly investment spending to help compensate for persistent weakness in merchandise exports,” he added.

The central bank expects average inflation of 3.1 percent in 2012 and 3.4 percent in 2013, both below economists’ inflation forecasts of 3.7 percent and 4.2 percent for this year.

Monetary authorities expect the economy to pick up pace this year on the back of higher and faster government spending. The government is targeting growth of five percent to six percent in 2012.

The National Statistics Office (NSO) reported yesterday that the annual inflation in National Capital Region (NCR) went up to 3.5 percent in January from three percent in December while inflation in areas outside NCR continued to decelerate to four percent from 4.5 percent.

On an annual basis, the increment in food and non-alcoholic beverages index at the national level further eased to 3.3 percent in January from 4.1 percent in December; alcoholic beverages and tobacco index, 5.6 percent from six percent; furnishing, household equipment and routine maintenance of the house index, 2.4 percent from 2.5 percent; health index, 2.8 percent from three percent; and transport index, 5.3 percent from six percent.

Moreover, the communication index continued to record a negative annual rate at -0.2 percent from -0.4 percent. The rest of the commodity groups have higher annual growth rates.

The annual inflation rate for food alone index in the Philippines further moved at a slower pace of 3.3 percent in January from 4.2 percent in December.