Philippine Inflation Slowdown Sparks Monetary Policy Shift

Philippine inflation recorded its slowest increase in over four years, allowing the central bank to consider further interest rate cuts. September's CPI rose by 1.9%, the smallest since May 2020. The year-to-date inflation averages at 3.4%. Authorities anticipate a declining trend in upcoming quarters.

In September, the Philippine annual inflation rate rose at its slowest pace in over four years, largely due to a reduction in food price hikes and a decrease in transport costs. This development provides the central bank with potential leeway to further cut interest rates. The consumer price index increased by 1.9% over the previous year, marking the smallest rise since May 2020 and falling short of both the last month's reading of 3.3% and the 2.5% forecast predicted by a Reuters survey.

Finance Secretary Ralph Recto indicated that the inflation rate may stabilize around 3.2% this year, aligning with the central bank's target of 2% to 4%. Recto suggested this could permit the BSP to adopt a more aggressive approach in monetary policy to foster economic growth and boost government revenue. The central bank anticipates a downward inflation trend continuing in future quarters due to easing supply pressures and favorable base effects from the previous year.

Core inflation, excluding volatile food and energy prices, also decelerated to 2.4% in September from 2.6% in August. A marked slowdown in rice price inflation contributed significantly, dropping to 5.7% from August's 14.7%. The central bank had reduced its policy rate by 25 basis points to 6.25% in August, the first decrease in nearly four years. Governor Eli Remolona stated further cuts could occur in October and December should the easing inflation trend persist.

(With inputs from agencies.)