December inflation slackens to 2.7%, slowest in 15 months

By DANESSA O. RIVERA, GMA News

Published January 6, 2015 10:55am

(Updated 1:49 p.m.) Inflation eased up to its slowest pace in over a year as prices of food, oil, housing and utilities continued to slide, the Philippine Statistics Authority (PSA) reported Tuesday.

Consumer prices decelerated to 2.7 percent in December, compared with 3.7 percent in November and 4.1 percent a year earlier, PSA data showed.

The December inflation was the slowest in 15 months when the consumer price index clocked in at 2.7 percent in September 2013.

Surprisingly low, the inflation last month, however, was within range of what analysts projected, Metropolitan Bank & Trust Company research head Ildemarc Bautista said by phone.

"It's lower than what we're expecting but it conforms to our expectation of a lower trajectory moving forward," he said.

In a separate statement, Economic Planning Secretary Arsenio Balisacan said the low inflation rates in the past four months kept the average rate for 2014 to 4.1 percent, enabling the government to stay within its inflation target of 3.0 to 5.0 percent for 2014.

“The lower inflation outturn in December bodes well for consumption growth in the fourth quarter of 2014. Also, this shows that government policies remain supportive of a manageable inflation rate,” he said.

The slowdown was mainly reflected in the annual decreases in housing, water, electricity, gas and other fuels and transport.

"Contributing also to the downtrend were the lower annual increments in the indices of food and non-alcoholic beverages; alcoholic beverages and tobacco; furnishing, household equipment and routine maintenance of the house; health; and recreation and culture," according to PSA.

Year-on-year food inflation in December slowed to 5.5 percent from 6.5 percent in November despite the holiday season. Food prices spiked a year earlier, in part due to the typhoon Yolanda which hit the the Philippines on November 8, 2013, the National Economic Development Authority said.

Oil companies rolled back pump prices for the whole month of December as crude prices continued to slide in the world market.

Also, the Manila Electric Company announced a P0.19 per kilowatt hour decrease in electricity bills for December as the generation charge fell to its lowest level in 2014.

Aside from lower fuel and electricity rates, the arrival of rice imports and lifting of the truck ban may have contributed to the easing of inflation rate, Balisacan said.

“The absence of new major economic shocks, which could considerably affect food supply, as well as the normalization of supply chain of other food products, in part resulting from the augmentation of rice stocks from imports and the lifting of the expanded truck ban in September 2014 may have also contributed to the decline in inflation in December 2014,” he said.

The December inflation brought the annual average for 2014 to 4.1 percent, faster than the 3 percent registered in 2013.

Government estimates placed inflation within the 3 to 5 percent range.

Monetary policy

This falls within the the upper end of the 3 to 5 percent government target, making 2014 the sixth consecutive year when inflation settled within government target, Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said in a text message to reporters.

As risks to inflation are broadly balanced and consumer prices are expected within the government target of 2 to 4 percent this year, Bangko Sentral sees no need to raise rates in the near term, Tetangco noted.

"Our assessment for the time being is that the stance of policy is appropriate, but we are ready to make adjustments as needed to ensure our inflation objectives are met," he said.

The BSP chief said lower international oil prices should continue to counterbalance pending increases in transportation fares and utility charges.

"BSP will continue to watch market developments especially actions of advanced economies' central banks and their potential impact on global market risk appetite and global growth prospects, which in turn could impact our own domestic markets and inflation dynamics," he added.

For 2015, Balisacan said the government needs to be on guard against possible inflation risks such as pressures associated with higher water rates at the start of the year and the impact of destructions brought by typhoons “Ruby” and “Seniang” on prices of agricultural commodities.

“Given the lingering possibility of El Niño occurrence in the first quarter of 2015, we should intensify efforts to implement programs that will help the areas that are highly and moderately vulnerable to the adverse impact of a dry spell,” he said.

Balisacan noted that logistical issues continue to pose inflationary risks.

“While the easing of the truck regulation in Manila’s ports may have possibly contributed to the moderate inflation outturn, it is critical to continue exploring a more lasting solution to the congestion problem to avoid future disruptions in the domestic supply chain that could result in higher transportation costs,” he said.

Bautista said consumer prices will continue to ease up this year, "since there are low inflationary pressures.

"We'll just have to keep in mind some factors this year, like if oil prices start to become volatile and the effect of expected power crisis this summer," he said. – With a report by Xianne Arcangel/VS, GMA News

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