Philippines inflation slows to near three-year low in August

A vendor rests in her market stand that sells rice in Quezon City, Metro Manila in Philippines, September 5, 2018. REUTERS/Eloisa Lopez

MANILA (Reuters) – Philippine inflation slowed more than expected in August due to base effects and lower food and utility prices, cementing expectations for a third interest rate cut this year.

The consumer price index (CPI) <PHCPI=ECI> rose 1.7% in August from a year earlier, the statistics agency said on Thursday, the weakest pace in nearly three years and below the 1.8% forecast in a Reuters poll.

The data brought year-to-date inflation to 3.0%, which was well within the central bank’s 2%-4% target for the year.

Core inflation <PHCPXY=ECI>, which strips out volatile food and fuel items, edged down to 2.9% in August from 3.2% in July.

Food and non-alcoholic beverages, which make up nearly two-fifths of the overall basket used to calculate inflation, rose at a slower annual pace of 0.6% compared with 1.9% in July.

Price rises for housing, water, electricity, gas, and other fuel also eased to 1.8% from the previous month’s 2.2%.

Slowing inflation allowed the central bank to cut rates twice by a total of 50 basis points in May and August to give the economy a lift and buffer it from the fallout from the U.S.-China trade war.

Bangko Sentral ng Pilipinas Governor Benjamin Diokno has flagged a further quarter-point interest rate reduction before the end of 2019 to shore up economic growth, which slipped to its weakest in 17 quarters in April-June.

“We expect the governor to deliver on his pledge and cut policy rates by an additional 25 basis points at the 26 September meeting,” said ING economist Nicholas Mapa.

In a mobile phone text message, Diokno said the latest inflation reading “is excellent news indeed. This gives us more confidence that average inflation would be in the neighbourhood of 2% in Q3 before it would increase slightly in Q4.”

BSP raised the rates by a total of 175 basis points last year to rein in inflation, which peaked at a near-decade high of 6.7% in September and October.

Inflation is seen to average 2.6% this year and 2.9% next year, the central bank has said, well within its target of 2%-4% for both years.

(Reporting by Karen Lema and Neil Jerome Morales; Editing by Kim Coghill)

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