Inflation slowed to 3.3% in Aug, opens door for further rate cuts

Headline inflation in August eased to its slowest rate in seven months due to a more gradual increase in food and transport costs, the Philippine Statistics Authority (PSA) reported on Thursday.

Preliminary data from the agency showed the consumer price index grew by 3.3 percent year on year in August, albeit slower from the 4.4 percent in July and 5.3 percent last year.

This falls within the lower-end of the 3.2- to 4-percent forecast of the Bangko Sentral ng Pilipinas (BSP) for the month, and lower compared to the 3.7 percent average inflation forecast in an Inquirer poll of 11 economists conducted last week.

Inflation print in August marked the slowest growth in seven months or since the 2.8 percent logged in January. Stripping out seasonality factors, month-on-month inflation fell by 0.1 percent in August.

For the first eight months, inflation averaged 3.6 percent, still lower from the 6.6 percent in August 2023.

National statistician Dennis Mapa attributed the cooling inflation to the slower increase in food and nonalcoholic beverages and transport costs, primarily with rice which showed a significant decrease for the month. The major food staple accounted for one third of overall inflation.

Rice inflation eased to 14.7 percent from 20.9 percent a month ago. This was the slowest growth in 10 months or since 13.2 percent in October 2023.

“The rice inflation we have an expectation of course, we already said it would start to go down from July and August, it will start to go down significantly,” Mapa said during a press briefing, adding that he anticipates rice inflation will decrease to single-digit level in September.

Effective measures

Meanwhile, the heavily weighted food and nonalcoholic beverages index slowed to 3.9 percent from 6.4 percent in the previous month and 8.1 percent last year.

Food inflation alone cooled further to 4.2 percent in August from 6.7 percent in the previous month and 8.2 percent a year ago.

The decrease was also influenced by slower increases in transport costs, which fell by 0.2 percent compared to the previous growth of 3.6 percent. This was largely due to a drop in gasoline prices, which decreased by 5.8 percent compared to a previous growth of 5.4 percent, and a decline in diesel prices, which fell by 8.4 percent from a prior growth of 9.2 percent.

Robert Dan Roces, chief economist at Security Bank, said the slower inflation growth, especially in rice prices, suggests that the BSP’s monetary decision and other factors are effective in curbing price hikes.

“This positive trend should lead to further interest rate cuts. However, global economic conditions particularly oil prices, and the full impact of the rice tariff could influence future inflation rates so these factors require monitoring,” Roces said.

In a statement, the BSP said the softer inflation in August was “consistent” with its latest outlook that sees price growth going on a downward trend due to “easing supply pressures for key food items.”

The central bank added that it will continue to take “a measured approach” in ensuring price stability after deciding to cut the policy rate by 25 basis points (bp) to 6.25 percent at the August meeting of the Monetary Board.

Miguel Chanco, economist at Pantheon Macroeconomics, said the slower inflation in August would give the BSP more space to further slash borrowing costs.

“We continue to believe that the BSP will follow its August rate cut with another 25-bp reduction in October, before stepping up the pace of easing to 50-bp each time starting in December,” Chanco said.

Concrete steps

President Marcos was elated by the inflation slowdown and vowed to take more “concrete steps” to ensure food security and stable prices of goods so that the impact of the slower rise in the prices of basic goods will be felt by more Filipinos.

The Kadiwa ng Pangulo program of the Department of Agriculture, for example, will be further expanded in the Visayas and Mindanao.

The Kadiwa program provides farmers and fisherfolk with rent-free venues where they can sell their fresh produce directly to consumers without middlemen.

“This will help ensure that basic goods remain affordable for many Filipinos,” the President said.

He also cited the controlled roll out of the African Swine Fever vaccine, which he said will “ensure a stable pork supply and avoid price hikes in the prices of pork.”

“Our actions to promote a stable supply of transportation and gasoline also helped ease the burdens of our countrymen. These are concrete steps we’re taking to make sure that the Bagong Pilipinas we promised is felt where it matters most – at home,” Mr. Marcos said. —WITH A REPORT FROM JULIE M. AURELIO