Philippine inflation slowdown in September paves way for rate cuts

By Karen Lema and Mikhail Flores

MANILA (Reuters) – The Philippines’ annual inflation accelerated to its slowest pace in more than four years in September due to a slower rise in food prices and a downward trend in transportation costs, giving the central bank the opportunity to further reduce interest rates.

The consumer price index (CPI) rose 1.9% in September year-on-year, the smallest increase since May 2020. It was also lower than the previous month’s 3.3% and 2.5 % predicted in a Reuters poll.

With last month’s data, Finance Secretary Ralph Recto said inflation could run around 3.2% this year, within the bank’s 2-4% target. central.

“This gives the BSP more room to be aggressive in easing monetary policy to help the economy grow at a faster pace and help the government increase revenue,” Recto said in a press release.

The BSP said in a statement on Friday that inflation is expected to trend downward in subsequent quarters, due to easing food-related supply pressures and upward-related base effects. consumer prices last year.

“The balance of risks to the inflation outlook continues to tilt to the downside for 2024 and 2025, with a slight upward trend for 2026,” the central bank said.

This brought average year-to-date inflation to 3.4%.

Core inflation, which does not take into account volatile food and energy prices, also slowed to 2.4% in September from 2.6% in August.

The deceleration in food inflation recorded last month is explained by a significant slowdown in the rise in rice prices, to 5.7% compared to 14.7% in August, due to base effects and the impact reduction of customs duties.

The central bank, which cut its benchmark rate by 25 basis points to 6.25% in August, the first reduction in almost four years, will meet on October 16 to decide the direction of interest rates.

BSP Governor Eli Remolona said two 25 basis point cuts, one in October and another in December, were possible with a downward trend in inflation.

(Reporting by Mikhail Flores and Karen Lema; editing by Martin Petty, Christopher Cushing and Alexander Smith)