The Philippine economy recorded its lowest annual inflation rate since May 2020 in September, mainly due to a reduction in food and transportation costs. The consumer price index (CPI) rose 1.9% from the same month a year earlier, marking a significant decline from August’s 3.3% rise and falling below of the 2.5% anticipated.
This slowdown has presented the Bangko Sentral ng Pilipinas (BSP), the country’s central bank, with an opportunity to consider further interest rate reductions. The Minister of Finance, Ralph Recto, indicated that with the latest data, inflation should stabilize around 3.2% for the current year, aligning with the target range of 2% to 4% of the central bank.
Recto pointed out that the lower inflation rate allows the BSP to adopt a more aggressive monetary easing strategy, which could accelerate economic growth and help the government increase tax revenue.
The BSP, in a statement released Friday, projected that inflationary trends would continue to decline in the coming quarters, citing easing supply pressures in the food sector and the base effects of high consumer prices recorded l ‘last year. The central bank also mentioned that while the balance of risks for the inflation outlook tilts to the downside for 2024 and 2025, there is a slight upside risk for 2026.
Core inflation, which excludes volatile food and energy prices, also slowed to 2.4% in September from 2.6% in August. A notable factor in the slowdown in food inflation was the increase in the price of rice, which rose from 14.7% in August to 5.7% in September. This change was attributed to base effects and the impact of reduced tariffs.
To date, average inflation since the start of the year stands at 3.4%. The BSP, which previously cut its policy rate by 25 basis points to 6.25 percent in August, is scheduled to meet on October 16 to decide on future interest rate directions. BSP Governor Eli Remolona previously suggested that two 25 basis point cuts could be possible – one in October and another in December – if the trend of easing inflation persists.
Reuters contributed to this article.
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