7-11-2023 (MANILA) The Philippines witnessed a slowdown in its annual inflation rate for the first time in three months, particularly in October, primarily driven by decelerating price increases in essential food items, including rice, as reported by the statistics agency on Tuesday. This development is expected to reduce pressure on the central bank to consider further interest rate hikes.
The consumer price index recorded a 4.9% increase in October, a notable drop from the 6.1% inflation rate observed in September. This figure also came in below the 5.6% forecast in a Reuters poll, as well as the central bank’s projection of 5.1% to 5.9%.
The slowdown in food inflation, attributed in part to the reduced rate of increase in rice prices, dropping from 17.9% in September to 13.2% in October, contributed to the overall cooling of consumer prices last month. Excluding the volatile food and energy components, core inflation also eased, decreasing from 5.9% in the previous month to 5.3%.
Despite these recent developments, the year-to-date average inflation rate for January to October stands at 6.4%, which remains significantly above the central bank’s comfort range of 2% to 4% for the entire year.
Economic Planning Secretary Arsenio Balisacan emphasized the importance of continuing to monitor the prices of various commodities, with a particular focus on food, transportation, and energy, in light of global challenges such as geopolitical uncertainties and the El Niño phenomenon.
In response to concerns of spiraling inflation, the central bank had already implemented an off-cycle interest rate hike of 25 basis points on October 26, while keeping the door open for another potential hike at its meeting scheduled for November 16, should the inflation situation worsen.
Michael Ricafort, an economist at Rizal Commercial Banking, noted that the slower inflation rate in October, combined with a strong peso and declining global crude oil prices, could support the idea of pausing local policy rates or at least reducing the urgency for further rate hikes.
As the central bank’s next meeting approaches, third-quarter annual economic growth data will be available. Finance Secretary Benjamin Diokno anticipates this data will surpass the second-quarter growth rate of 4.3%. However, the government also released data on Tuesday indicating a 6.3% contraction in exports for September compared to the previous year, along with a 14.7% decline in imports.
Finance Secretary Diokno, who is a member of the central bank’s policymaking Monetary Board, expressed his intention to vote in favor of keeping the benchmark interest rate steady at 6.5%.
