Brief lockdown slows inflation in the Philippines

MANILA, Sep 4, 2020, PhilStar. Inflation eased for the first time in three months in August, demonstrating the impact of fresh lockdowns in Metro Manila and neighboring areas on economic activity. Consumer prices decelerated by an annual pace of 2.4% in August, slower than the 2.7% in July, the Philippine Statistics Authority reported on Friday, The Philippine Star reported.

The latest figure fell below the central bank’s 2.5-3.3% forecast for the month. With the latest outturn, inflation averaged 2.5% for the first 8 months, falling within the central bank’s 2-4% target for the year.

Slower price increments were unexpected even by the Bangko Sentral ng PIlipinas (BSP), which has taken advantage of manageable inflation to slash bank interest rates to record-lows, encourage borrowers to secure credit, and lenders to lend. The latest data only gives BSP, with three more meetings left this year, wider space to do that.

“The BSP will continue to evaluate the transmission of the BSP’s policy actions to the economy along with the recently approved fiscal measures to address the public health crisis,” Governor Benjamin Diokno said in a Viber message to reporters.

While slowing inflation is typically good news, recent months of slowing prices also appeared to reflect dismal economic activity among consumers too afraid to go out and spend. In August, President Rodrigo Duterte also enforced a 15-day stricter lockdown from Aug. 4 to 18 in Metro Manila, Bulacan, Rizal, Laguna and Cavite, key economic areas in Luzon.

“The balance of risks tilts toward the downside owing largely to potential disruptions to domestic and global economic activity of the ongoing pandemic,” Diokno said.

While there is “no shock or spike in food prices” coming from brief lockdowns per se, National Statistician Claire Dennis Mapa also said that it appears prices tempered because “there is enough supply” of food as consumers stayed home.

‘Inflation less of a concern’

Specifically, food and non-alcoholic beverages, which accounted for 39% of basket of goods and services used to compute inflation, slowed inflation last month, rose an average 1.8% year-on-year in August, the slowest this year, figures showed.

Chicken, pork, fish prices slowed, while vegetable costs dropped. Core inflation, which excludes volatile food and energy items, slowed to 3.1% last month from 3.3% in July.

Four other subindices posted slower inflation, while one experienced slight deflation. Alcoholic beverages and tobacco price increases eased to 17.7% annually. With shoppers not dining out and spending, subindices gauging miscellaneous goods prices and clothing inched up a slower 2.3% and 1.9%, respectively. Rice prices remained declining.

“The main reason for it is that demand conditions though improving, will remain below its long term level, thereby suppressing pricing power. So overall, inflation is unlikely to be a major cause for concern,” ANZ economist Sanjay Mathur said in an e-mail.

By area, inflation in Metro Manila was steady at 2.2%, while that of areas outside it slowed to 2.5%. Rice prices, which account for nearly a tenth of basket of goods and commodities used to compute inflation, remained declining.

For the rest of the year, prices are seen to be less of a problem for the economy. “We expect a gradual fall in the headline rate over the rest of 2020. (It) means that prices will only rise by 2.3% over the year as a whole,” said Alex Holmes, Asia economist for Capital Economics.

Tags: Philippines