Inflation eases to 2.7% in June

MANILA, Philippines (Updated 10:50 a.m.) — Consumer price growth in the Philippines resumed its downtrend in June to post the slowest rate since September 2017, the government reported Friday, giving the Bangko Sentral ng Pilipinas more space for further policy easing.

Inflation stood at 2.7% in June, slower than the pace recorded in May that saw price hikes quicken to 3.2%. The latest reading was also lower than 5.2% chalked up a year ago.

Year-to-date, inflation averaged 3.4%, well within the state’s 2%-4% annual target.

“The slowdown of inflation in June 2019 was mainly driven by slower annual rate posted in the index of the heavily-weighted food and non-alcoholic beverages at 2.7%,” the Philippine Statistics Authority reported.

Many central banks around the world have begun slashing rates in a bid to power economic growth amid headwinds that are cooling the global economy. The BSP in May cut its benchmark rate by 25 basis points to 4.5% from a decade-high of 4.75%, and announced a three-step reduction in bank reserves to 16% from 18%.

Last month, the BSP decided to do a “prudent pause for the time being” and kept its key rate unchanged. Monetary authorities will meet again in August to review policy settings.

“The BSP will keep close watch over latest economic developments to ensure that the monetary policy stance remains consistent with the BSP’s price stability objective while being supportive of economic growth,” Governor Benjamin Diokno said in a statement.

Diokno — who is widely seen by the market as a pro-growth central bank chief — has said there is room to further loosen monetary policy, but stressed that the timing and magnitude of any actions would be “data dependent.”

“With inflation showing it may revert to a downward path in line with Bangko Sentral ng Pilipinas' forecast, the BSP will likely be parsing other data points ahead of its policy decision in August,” said Nicholas Mapa, senior economist at ING Bank in Manila.

“With inflation well within its target, BSP will likely look to tap on the accelerator once more after having slammed so hard on the brakes the previous year,” Mapa also said, adding that a rate cut will likely come in August “should inflation continue to show it will remain within target and [second quarter economic] growth is projected to be soft.”

Separately, HSBC Global Research economist Noelan Arbis said there are no significant risks to inflation in the months ahead.

Arbis said he is penciling in a 25-basis point cut in the BSP’s benchmark rate in August and another 100-basis point reduction in bank reserves in the fourth quarter to 15%.

“Headline inflation is likely going to remain below-3% for most of 2H19 given favourable base effects and benign demand-side pressures,” Arbis said. “Easing inflation and benign inflationary pressures imply that the BSP will firmly be focused on growth.” — Ian Nicolas Cigaral