Philippines: Inflation slides within Central Bank’s target range in February
Consumer prices rose 0.2% over the previous month in February, matching January’s print. A sharp increase in alcoholic beverages and tobacco prices drove the uptick, while housing, water, electricity, gas, and other fuels prices also rose higher. Conversely, lower prices for food and non-alcoholic beverages offset the print.
Inflation receded to 3.8% in February from 4.4% in January, entering within the upper range of the Central Bank’s target band of 3.0% plus or minus 1.0 percentage point for the first time in one year. The deceleration was largely driven by a slowdown in food inflation. Meanwhile core inflation, which excludes volatile food and energy prices, eased to 3.9% in February from 4.4%, while annual average inflation was stable at 5.3% in February.
February’s report was an encouraging sign that supply-side pressures, largely due to the Tax Reforms for Acceleration and Inclusion (Train) laws, seen in 2018 are finally abating following last year’s monetary tightening from the BSP. In a statement following the press release, newly-appointed Central Bank Governor Ben Doikno commented “This gives us confidence that our medium term inflation forecast ranging 2-4% is appropriate”.
Along within moderating inflation, speculation about Governor Doikno’s pro-growth stance and fiscal policy background have markets penciling in a rate cut sooner than previously expected. While several FocusEconomics analysts expect a rate cut as early as this year, the majority of the panel continues to see the Bank on hold in 2019.
Commenting on the newly-appointed governor, ING senior economist Nicholas Mapa noted:
“With inflation back within the target range, this leaves the door wide open for newly appointed Governor Ben Diokno to think about easing off the brakes and looking to help support the growth side of the equation. Governor Diokno has spent his career on the fiscal side of the fence and has indicated that the “role of the BSP is to ensure sustained inclusive growth”. With the price goal seemingly in hand, it may be time for the BSP to consider the possibility of reducing the reserve requirement ratio in the near term, and eventually lower policy rates to help chase the 7-8% growth target.”