By Luisa Maria Jacinta C. Jocson, A reporter
HEADLINE INFLATION has probably slowed near a four-year low in September amid falling rice and fuel prices, to provide the Bangko Sentral ng Pilipinas (BSP) an area of moderate interest rate cuts, analysts say.
A BusinessWorld a survey of 15 analysts conducted last week showed a median estimate of 2.5% for September’s consumer price index (CPI).
If it happens, in Septemberflation will do down significantly from 3.3% in August as well 6.1% in the same month last year.
This would also be the lowest monthly print in nearly four years or since the 2.3% clip in October 2020.
The Philippine Statistics Authority is scheduled to release inflation data for September on Friday (Oct. 4). The BSP has yet to release its inflation forecast for next month.
A reduction in rice prices may have caused the CPI to fall this month, analysts said.
“The price will drop for rice, which makes up a large part of the weighted food basket. Prices rise in 2023 when India bans exports of non-basmati white rice,” Sarah Tan, an economist at Moody’s Analytics, said in an email.
Rice in halffit fell to 14.7% in August from 20.9% in July. Rice usually takes up about half of all inflation.
The Ministry of Agriculture earlier this month said it was looking to reduce ricefcompliance with single digit standards.
“The cutting of the tariff on imported rice, which took efat the end of June and will last until the end of the year, it will help reducefthis is a basic dish,” Ms Tan added.
In June, President Ferdinand R. Marcos, Jr. issued Executive Order No. 62, to cut tariffs in rice sales at 15% from 35% until 2028.
“The basic effects of food prices will remain positive, since the increase in the price of rice last year. This should pull the food infis decreasing significantly, even if there is no noticeable change from month to month,” said Pantheon Macroeconomics Emerging Asia Economist Miguel Chanco.
Philippine National Bank economist Alvin Joseph A. Arogo said the August alcoholic and non-alcoholic beverages index also “provides food.fagainst the potential negative impact of current and future hurricanes on overall food prices.”
Low fuel prices are likely to lead to a decline in Septemberflation, analysts added.
“Disinflation may come more from the broader CPI for food and transportation. In particular, we expect lower rice prices and lower gasoline/diesel prices from the decline in global prices,” Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an email.
In September, the pump price adjustment was completely reduced by P0.95 per liter for gasoline, P2.10 for diesel and P2.35 for kerosene.
“Retail oil prices fell about 7% in the month due to lower global oil prices and a stronger peso against the US dollar,” said Aris D. Dacanay, ASEAN (Association of Southeast Asian Nations) economist at HSBC Global. Research, it says.
“Inflation in transportation should also deepen, further reducing the rate of inflation, due to the increase in domestic pump prices, reflecting the weakness of global oil prices,” said Mr. Chanco.
“(Inflation) was probably within the target range as efthe result of reducing supply constraints, lower oil prices, and importsfdecrease in agricultural imports. However, it is still threatened by natural disasters that may disrupt food supply,” said Oikonomia Advisory & Research, Inc.
EXTRA ROOM TO GIVE MEASUREMENTS
Expected decline in entryfin the coming months will give the BSP more room to continue its policy easing cycle, analysts said.
In the coming months, you may be infstabilization at 3% rates until the end of 2024, or within the BSPfrate target range of 2-4%, which would justify further BSP rate cuts that would match any Fed rate cuts in the future from 2024-2026,” said Rizal Commercial Banking Corp Chief Economist. Michael L. Ricafort.
“With CPI inflation remaining on a downward path and the US Fed already starting its tightening cycle, the BSP has a lot of work to do to further ease its monetary stance,” said Nomura’s Head of Global Markets Research in ASEAN Euben Paracuelles. “We still forecast the BSP to cut by 25 bps at each of the October and December meetings, and by 75 bps at the first three meetings in 2025, bringing the policy rate to 5%.
BSP Governor Eli M. Remolona, Jr. last week he indicated that the central bank could deliver a 25-bp cut in each of its two remaining meetings.
The Monetary Board in August cut borrowing costs by 25 bps, bringing the key rate to 6.25% from a 17-year high of 6.5%.
It will hold its next policy review on Oct. 17, while its final meeting of the year is scheduled for Dec. 19.
Meanwhile, the Fed this month kicked off its easing cycle with a 50-bp rate cut, bringing its target rate to 4.75-5%.
Markets are pricing in a cut of at least 25 bps at the Fed’s November meeting according to CME’s FedWatch Tool, Reuters reports.
“Cooling insidefprinting in September will confirm the BSP that inflation has returned to its permanent target after the July spike. Coupled with the recent 50-bp rate cut by the US Federal Reserve, this increases the chances of an October rate cut in the Philippines,” said Ms. Tan of Moody’s Analytics.
“Indeed, the start of the monetary policy easing cycle in the US gives the BSP room to continue to loosen its monetary policy. The BSP may go with two 25-bp cuts in the fourth quarter in each of their two meetings in October and December,” added Ms. Tan.
Mr. Chanco of Pantheon Macroeconomics said that if there is no “big shock” until the next release of inflation, the Monetary Board may initiate another 25-bp reduction at its October meeting.
“However, potential risks from oil and typhoons may keep the BSP cautious about lowering interest rates. The central bank is likely to choose a more gradual approach, with 25-bp cuts in October and December,” added Security Bank Corp.’s Chief Economist. Economist Robert Dan J. Roces.
Zamros Bin Dzulkafli, an economist at Maybank Investment Banking Group, similarly expects the BSP to cut rates by a total of 75 bps this year, “supported by the recent ‘aggressive’ 50-bp rate cut by the US Fed.”
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