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September is the slowest inflation in more than 3 years

A vendor rests in every market that sells rice in Quezon City. – REUTERS

INFLATION slowed to 0.9% in September amid lower food and electricity costs, the Philippine Statistics Authority (PSA) said on Friday.

Prices of widely used goods and services in September further cooled from 1.7% in August due to "softer price adjustments observed in almost all commodities and base effects, coming from 6.7% in the same period in 2018."

The September reading was the slowest since the 0.7% logged in April 2016, but matched the 0.9% in May 2015 and May 2016.

Last month's print fell to the low end of the Bangko Sentral ng Pilipinas (BSP) 0.6% -1.4% forecast for September. It was also below the 1.1% median estimate BusinessWorldA poll of 16 economists last week.

For the nine months to September, headline inflation averaged at 2.8%, well within the BSP's 2-4% target range for 2019.

The National Economic and Development Authority (NEDA) said in a statement that it "expects inflation to further ease in the near term due to the higher supply of rice in the country permitted by the Rice Tariffication Law (RTL)."

Food and non-alcoholic beverages recorded deflation at 0.9%, while non-food inflation eased to 1.6%.

The NEDA noted rice deflation continued for the fifth straight month, dropping to 8.9% in September from 5.2% in August.

“We're seeing the Rice Tariffication Law continue to help pull down overall inflation in the near term as it continues to help improve the country's rice stock inventory. This access to cheaper rice is good for Filipino consumers, ”Socioeconomic Planning Secretary Ernesto M. Pernia was quoted as saying in the statement.

In a separate statement, the BSP said the September inflation print was "driven by continued decline in rice prices and electricity rates, which offset higher prices of petroleum and selected food products."

"The latest inflation outturn is consistent with the BSP's prevailing estimate that inflation will continue to decelerate in Q3 2019 and pick up slightly in the remainder of 2019," the central bank said.

ING NV-Manila Branch senior economist Nicholas Antonio T. Mapa noted that inflation eased after bottlenecks had spiked since last year's "supply-side oriented" spike, paired with a series of government-implemented rates by the BSP.

“Inflation will likely reverse target once base effects. Price pressures appear to be benign as food prices are expected to be more stable given new legislation and government's openness to importing food stuff, ”he said in a note sent to reporters.

Meanwhile, Security Bank Corp. economist Robert Dan J. Roces said the central bank may have reached the end of its projected easing cycle for the year.

"We think further cuts could affect real interest rates if not managed since inflation is expected to normalize next year," he said in a note to reporters.

However, he added that global pressure "does give scope for the BSP to consider further reducing the situation warranting it."

Inflation peaked at a near-decade high of 6.7% in September and October last year. Overall prices have since eased, allowing the central bank to start reversing some of last year's 175-basis points' worth of interest rates.

Last week, the central bank slashed its benchmark interest rate for the third time this year to support a slowing economy. It also reduced banks' reserve requirement ratio by 100 basis points to boost credit growth.

"Declining inflation trends would provide greater flexibility in terms of greater ease for any further easing of local monetary policy," said Michael Ricafort, an economist at Rizal Commercial Banking Corp.

Bangko Sentral ng Pilipinas Governor Benjamin Diokno said on Tuesday he remained confident 2019 growth would reach 6%, the lower end of its 6-7% forecast, but acknowledged it might just miss the mark.

He declined to say whether further easing would happen in 2019, saying it would depend on inflation rates that are currently "under control". – L.W.T.Noble with Reuters

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