Des Ferriols
Philippine Star

The inflation rate slowed down to 11.9 percent in September from 12.5 percent in August, a development officials said indicated the softening of prices of basic commodities after weeks of worrisome increases.

The National Statistics Office said, however, that the September figure was still significantly higher than last year’s 2.7-percent inflation rate.

Malacañang rejoiced at the news but warned against complacency.

“There is a warning that we should not be complacent about it, but this is good, that we can maintain our economic stability despite what happened in the US,” Executive Secretary Eduardo Ermita said.

Press Secretary Jesus Dureza said the latest figures showed that the country’s fundamentals remain strong against external shocks.

The September inflation rate brought the average this year to 9.7 percent for the first nine months, which is still within the seven percent to 11 percent projection made by the central bank but significantly above the three-percent to five-percent target for 2008.

Excluding selected food and energy items, however, the NSO said core inflation actually rose to 7.5 percent in September from seven percent in August.

This could indicate a leftover growth momentum for inflation in non-volatile items.

But Bangko Sentral Governor Amando Tetangco expressed optimism that the September slowdown indicated easing inflationary pressures.

This was the Monetary Board’s basis for leaving the monetary policy setting unchanged.

“The September inflation rate marks the turning point towards declining inflation this year and next,” he said. “We will continue to monitor global and domestic developments to make sure that our policy stance remains appropriate.”

The NSO attributed the September slowdown to the slower annual price hikes of the heavily weighted food, beverages and tobacco (FBT) and services items.

Annual inflation rate in the National Capital Region (NCR) also eased to 8.2 percent in September from 8.7 percent in August because of slower price increases last month in FBT and in services and miscellaneous items.

The NSO said consumer prices generally went down month-on-month because of the decline in the prices of rice, corn and meat. The general decline in electricity rates and the series of rollbacks in the prices of LPG, kerosene, gasoline and diesel also contributed to the downtrend.

The government’s official inflation target for 2008 was 3.5 percent to 5.5 percent and for 2009, the forecast was 2.5 percent to 4.5 percent.

However, runaway world oil prices caused the inflation rate to swerve sharply from the target.

This made the Bangko Sentral ng Pilipinas (BSP) accept the likelihood of off-target inflation rate for 2008 and possibly for 2009 as well.

The BSP then projected the inflation rate to reach seven to nine percent in 2008 and four to six percent in 2009.

But according to the BSP, the September inflation increased the likelihood of single-digit inflation figures by the first quarter of 2009.

The MB noted earlier that the emerging inflation outlook reflected “recent easing” in global food and oil prices. This indicated that domestic prices might also start to moderate, reducing the need for monetary tightening.

The BSP has consistently stated that despite the economic slowdown, the country is still expanding at a “respectable level” and that remittances would continue to fuel private consumption, the powerhouse behind the country’s resilient growth.

Decelerating rate seen

After deciding to keep its monetary policy settings steady for the next six weeks, the BSP said it is looking at a “notional” inflation target of 2.5 percent to 4.5 percent for 2010, which is based on the original 2009 target.

Tetangco said the inflation outlook considered by the MB indicated steady deceleration to single-digit levels by early 2009.

“The improving inflation outlook would bring us to the target-consistent path by 2010,” Tetangco said.

BSP deputy governor Diwa Guinigundo said the BSP still has to present its 2010 and 2011 inflation targets to the Development Budget Coordinating Committee (DBCC).

“The latest forecast shows that for 2010, we’re within range,” Guinigundo said.

He said the possibility of the inflation rate dropping back to single-digit levels by the first quarter of 2009 is even more possible now considering the latest figures.

Earlier this week, economic officials downgraded their projections, with the growth in gross domestic product now expected to slow down to 4.7 percent this year and even to as low as 3.8 percent if the US economy slips into recession.

- With Paolo Romero