Philippines Inflation Rate Slows down to 3.1% In October 2012

The Philippines' rate of inflation continued to decrease in October from the previous month, indicating that the country's inflationary pressures are well contained, providing room for further monetary easing policy measures required to boost economic growth.

The rate of inflation fell to 3.1 percent in October compared to the same month last year, down from 3.6 percent in September, according to the data released Tuesday by the National Statistics Office. Core inflation, which excludes food and energy items, fell to 3.6 percent in October down from 3.8 percent in September.

The diminishing inflation should be good news because it can help the government invigorate growth without much concern about the rising prices. Inflation may no longer be the main concern of policymakers and the government may have more space to loosen the monetary policies and make supporting economic growth a priority.

This report comes after last month Bangko Sentral ng Pilipinas (BSP) cut its key policy rate by 25 basis points to an all-time low of 3.5 percent, citing benign outlook for inflation and worries over growth prospects. The cut was the fourth since the start of the year and takes total cumulative easing since the start of 2012 to 100bp.

"We believe inflationary pressures will remain weak. A combination of weaker growth in the Philippines and falling global commodity prices mean price pressures are likely to remain subdued in the coming months," Capital Economics said in a note.

The central bank has its next meeting in December, when investors expect the rates will be left unchanged as the BSP takes time to monitor the impact of last month's cut. However, if global growth remains as weak as expected over the next year and the crisis in the euro zone continues to intensify, further loosening is likely in 2013.

The continuing debt crisis in Europe and the tentative U.S. recovery have hurt the demand for exports, the key driver of the Philippines' economy. Policymakers understand that export- and investment-driven economic model was no longer sustainable for Philippines and reforms are needed to prevent a sudden slump in growth.

Investors expect that instead of fighting inflation, the most urgent priority for the Philippines appears to be the pro-growth policy stance against the current uncertain global situation.

International Business Times (USA)