Inflation expected to continue going down

MANILA, Philippines - Inflation is expected to continue its downward trend and may decline further in 2015 on lower food and fuel costs, according to First Metro Investments Corp. (FMIC).

The country’s inflation rate slowed to 3.7 percent in November from 4.3 percent in October. It was the lowest inflation reading since December last year.

“We expect headline inflation rate to continue to fall to 3.8 percent by December and even substantially lower in 2015,” According to the Market Call, a joint publication between FMIC and the University of Asia and Pacific (UAP).

Lower inflation provides the Bangko Sentral ng Pilipinas with room to keep borrowing costs steady. The monetary policy body raised its key rate by 25 basis points last July and September.

“The sharp downward trend of inflation and the normalization of money growth by November (to around nine percent) provides much reason for the BSP to take a pause in its monetary tightening cycle at least until after first quarter of 2015,” the report said.

Oil and rice prices have gone down over the past months on weaker global demand and larger supplies.

The Paris-based International Energy Agency which coordinates the energy policies of industrialized countries, slashed its outlook for global oil demand growth for 2015 by 230,000 barrels per day to 900,000 bpd on expectations of lower fuel consumption in oil-exporting countries.

Oil prices are forecast to fall to as low as $43 a barrel next year unless OPEC producers cut their production.

The government likewise recently approved additional imports of rice, further boosting supplies of the staple.

Growing concern over a slowdown in the euro area and emerging economies, a strong US dollar, a well-supplied oil market and good crop prospects have contributed to a weakening of many commodity prices since June.

The arrival of more imported rice and the start of the delayed harvest season by mid-October, as well as the dropping of the truck ban in Manila, have put downward pressure on food prices.

In terms of growth, the local economy is expected to grow above six percent in the second half on the back of improving export revenues, lower inflation and high consumer spending.

Total merchandise exports rose 9.2 percent to $40.75 billion in the eight months through August this year.

Despite the slowdown in manufacturing output, the country’s exports are seen to sustain robust growth due to strong demand from the US.