Philippines’ overall inflation cooled to the slowest in six months in March while the month-on-month measure fell, suggesting that the central bank has scope to ease up on its most aggressive tightening cycle in two decades.
(Bloomberg) — Philippines’ overall inflation cooled to the slowest in six months in March while the month-on-month measure fell, suggesting that the central bank has scope to ease up on its most aggressive tightening cycle in two decades.
Headline consumer prices rose 7.6% year-on-year last month, slowing from a near 14-year-high of 8.6% in February and the lowest since September. The print was below all 21 estimates in a Bloomberg survey where the median was for an 8% gain. The central bank forecast was for 7.4% to 8.2%.
Compared to February, the price index last month declined 0.2%, the first contraction since September 2021. The core gauge, which strips out volatile food and fuel costs, accelerated to 8% from a year ago to a fresh 24-year high. The mixed signals from diverging trends are keeping the central bank cautious.
“The balance of risks to the inflation outlook for 2023 and 2024 also continue to tilt significantly towards the upside,” Bangko Sentral ng Pilipinas said in a statement. Food supply shortages and higher transport and power costs point to the “broader-based nature” of price pressures, it said.
The BSP has raised its benchmark rate by 425 basis points since May 2022, among the most aggressive tightening in the region. Governor Felipe Medalla said last week that it may be “too early” to pause the BSP’s tightening cycle at the May meeting unless prices fall month-on-month while Finance Secretary Benjamin Diokno, a member of the BSP’s policymaking monetary board, made a case for a pause.
Diokno said Wednesday that the latest inflation data “supports my view that the monetary authorities have done enough to tame inflation.” He believes the “focus now should be on the supply side of the equation, of which the national government authorities play a bigger role,” Diokno said in a mobile-phone message.
The central bank also said on Wednesday that it will “continue to adjust its monetary policy stance as necessary” to prevent further broadening of price pressures, and called for an “effective implementation of non-monetary government measures” to mitigate the impact of supply-side pressures on inflation.
The peso climbed for a second day against the dollar, along with other regional currencies, as the main stock index rose.
The BSP can pause its rate hike cycle at the next meeting on May 18 given the month-on-month decline in inflation, said Michael Ricafort, chief economist at Rizal Commercial Banking Corp. in Manila.
But there’s still a possibility the Philippine central bank can match the next rate decision by the Federal Reserve to maintain “comfortable interest rate differentials” to help stabilize the peso, import costs and overall inflation, he said.
The easing in food price gains and transport costs helped drive overall inflation lower last month while those of alcoholic beverages and tobacco and restaurants ticked higher, the Philippine Statistics Authority said.
While inflation is starting to slow down, it remains the “most pressing issue that the government must monitor and urgently address,” said National Economic and Development Authority Secretary Arsenio Balisacan.
–With assistance from Cecilia Yap.
(Updates with additional data, analyst comments.)
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