April inflation settles at 2.6%, a 13-month low

Inflation last April was at its slowest in 13 months on lower costs of all commodities except those related to education, the National Statistics Office reported Tuesday. In a statement Tuesday, the NSO said inflation hit 2.6 percent last month, from 3.0 percent a year earlier. It was lower than the market consensus of 2.9 percent and at the midpoint of the central bank's 2.2 to 3.1 percent forecast for April. The last time inflation fell this low was in March 2012. The benign inflation is expected to give the Bangko Sentral ng Pilipinas some room to tinker with monetary policy in managing investment portfolio flows.  Last month's benign inflation "resulted from the slower annual increments in all the commodity groups except in the education index," the NSO said. The education index includes tuition and other fees as well as costs of school supplies and textbooks. The latest inflation figure pulled year-to-date inflation at 3.0 percent, below the central banks 3.2 percent forecast and at the lower-end of its 3 to 5 percent target for this year. In a text message to reporters Tuesday, Bangko Sentral Governor Amando Tetangco said prices will likely remain manageable this year. The central bank will "closely monitor the impact" of cuts on rates of its special deposit accounts on domestic liquidity, bank credit, and the financial and real property markets as well as changes to economic growth outlook, said Tetangco. The central bank has so far slashed the yield on SDAs—a tool to mop-up excess liquidity—to 2 percent. It has kept policy rates—the benchmark for banks' loans—at record lows of 3.5 percent for overnight borrowing and 5.5 percent for overnight lending since October last year. Bank of the Philippine Islands economist Emilio Neri Jr. said the slower inflation provides the central bank “elbow room for more accommodating monetary policy, particularly one that could temper the rise of the peso.” The peso is currently trading at the 40 to-a-dollar level, or stronger than the 42 level a year earlier. “With inflation remaining relatively benign we expect the central bank to keep the policy rate unchanged at 3.5 percent through 2013,” Singapore-based economist for Barclays Prakriti Sofat said in an e-mail to reporters. “We maintain our view that another 50 basis point of cuts in the SDA rate from the current 2% in the coming six months is likely, as the central bank tries to reduce sterilization costs further,” she added. Sofat noted the central bank governor has hinted possible limits on “property loans by referencing real-estate exposure to adjusted capital of banks.” Neri said the central bank might ask “more reportorial requirements for banks in order to dig deeper into data and see if they are comfortable with current practices. “It will be designed more as a preventive measure instead of bursting an already existing bubble,” Neri added, saying he still does not see any asset price bubble. — VS, GMA News