Inflation eases slightly to 2.9% in May

MANILA, Philippines - Philippine inflation eased slightly in May, supporting views of a manageable inflation outlook that should allow the Bangko Sentral ng Pilipinas (BSP) to keep interest rates at record lows to protect domestic demand in the face of a global economic slowdown. The National Statistics Office (NSO) reported yesterday the consumer price index rose 2.9 percent in May from a year earlier, slowing from three percent in April on lower oil and utility prices and stable food costs. The index rose 0.1 percent in May from the previous month. But core inflation, which strips out some of the more volatile components, quickened slightly to 3.7 percent from a year earlier after the previous month’s 3.6 percent reading. The statistics office has just completed the data series for core inflation using the new 2006 price base. BSP Governor Amando Tetangco Jr. said in a text message to reporters that lower inflation last month supports the latest assessment of generally well-behaved price movements. Tetangco pointed out that inflation last May was well within the BSP forecast of 2.5 percent to 3.4 percent for the month. “Lower utility and transport costs, among others, resulted in overall slower rise in prices,” he added. The consumer price index reading in May brought the five-month average inflation to three percent, matching the lower end of the government’s three- to five-percent inflation target this year, giving the BSP room to focus on supporting economic growth. “There are no immediate threats that may stem from rising oil or food prices and BSP is likely to maintain the overnight borrowing rate at 4 percent through to first quarter of 2013,” said Eugene Leow, economist at DBS in Singapore. “Providing support to the domestic economy remains paramount against a backdrop of slowing external demand,” Leow said. Tetangco has said this year’s economic growth target of five to six percent is achievable after a faster than expected expansion in the first quarter, but analysts were less optimistic given the deepening euro zone crisis and China’s slowing economy. The central bank cut its key policy rate by a combined 50 basis points in January and March, taking advantage of subdued inflation to boost economic activity in the face of a slowing global economy. Tetangco said monetary authorities would continue to monitor global developments in time for the next policy rate setting meeting on June 14. “Nevertheless we will continue to monitor developments, particularly in Europe and the US, to assess their potential impact on domestic price movements and on our own growth prospects to see if there is any need to make adjustments in our policy stance,” he added. BSP deputy governor Diwa Guinigundo said the current monetary policy stance of the central bank remains appropriate on the back of higher GDP growth and easing inflation. “What merits greater vigilance and analytical care is the slight blip in core inflation,” Guinigundo said. The annual inflation in the National Capital Region (NCR) further slowed down to 2.2 percent in May from 2.5 percent in April while that of areas outside NCR eased to 3.1 percent from 3.2 percent. The NSO said inflation in housing, water, electricity, gas, and other fuels index slowed down to 4.5 percent from 4.7 percent; health index to 3.2 percent from 3.3 percent; transport index to 2.2 percent from 3.2 percent; and education index to 4.6 percent from 4.7 percent. The food alone index at the national level retained its April growth of 1.7 percent but higher annual changes were registered in the rest of the commodity groups. – With Reuters - By Lawrence Agcaoili