Inflation further cools in October amid sharp drop in rice prices

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Inflation has softened further in October to a fresh three-year low, the Philippine Statistics Authority says.

Metro Manila (CNN Philippines, November 5) — Inflation eased further in October, with the prices of basic goods seeing only a modest pickup compared to a year ago, the Philippine Statistics Authority (PSA) said Tuesday.

Inflation slipped further in October at 0.8 percent, coming from September's 0.9 percent print. This is a sharp slide compared to the 6.7 percent rise in prices recorded in October 2018, which was the fastest in nearly a decade.

Inflation tracks the price movements of basic goods like food and fuel. The government wants to keep inflation within 2-4 percent this year, with the 10-month average now at 2.6 percent.

The official inflation print matches the 0.8 percent median forecast of 12 economists in a CNN Philippines poll last week, and the 0.5-1.3 percent range given by the Bangko Sentral ng Pilipinas.

National Statistician Dennis Mapa said rice and fuel costs maintained their year-on-year decline. Rice prices dropped for the sixth straight month with a 9.7 percent decline, while transport expenses also settled lower compared to a year ago.

Food prices down

Lower prices of corn, vegetables, and sugar products also pulled down prices in the food index, which dropped by 1.3 percent for the month. Food takes up the biggest chunk of typical consumer purchases in a month.

Meanwhile, the prices of alcoholic drinks and cigarettes posted a 2.8 percent climb, while the tags on clothing and footwear rose by 2.8 percent. Mapa also flagged rising prices of chicken and beef in the National Capital Region and Central Luzon amid the African Swine Fever. Consumers have been avoiding pork, which has driven the price of this meat down.

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"We see that it will continue because initial data in November is still showing upward prices, particularly chicken and also eggs. In Region 3, we're seeing beef prices (up)," Mapa said during the press briefing.

October inflation is the slowest since April 2016, and marked the fifth straight month of a decline. Inflation was higher in Metro Manila, where prices of basic commodities rose by 1.3 percent. Prices moved softer in the regions, which rose by an average of 0.7 percent.

Seven regions enjoyed a decline in prices in October, while Central Luzon saw the biggest price increase at 2.3 percent, data showed.

"As inflation continues to drop, the current government will continue to not let its guard down in monitoring the prices of basic commodities, especially now that we are in the ber months, approaching Christmas season," Presidential Spokesperson Salvador Panelo also said in a separate statement.

Going up

In a statement, the BSP said October inflation was driven by higher prices of electricity, cooking gas, water, and select food items. It added that this could be the lowest rate for the year, as inflation "could start to pick up slightly in the remaining months of 2019 as base effects start to dissipate".

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The central bank noted that prices are seen to stay within target until 2021, Fuel rates are seen to remain stable after geopolitical tensions in the Middle East, while deeper trade tensions between the United States and China are expected to temper prices.

For ING Bank Senior Economist Nicholas Antonio Mapa, steady inflation going into 2020 would set the stage for further interest rate cuts from the BSP.

"With inflation forecasted to remain within target even after base effects wash out, the BSP will continue to work to provide an environment conducive for economic growth for as long as the price objective is in hand," he said in a market commentary sent to reporters.

BSP Governor Benjamin Diokno has trimmed the key interest rate by 75 basis points (bp) this year. Mapa has projected a 50 bp reduction in 2020, with the first cut expected in the first quarter.