Slower Philippine Inflation in September Creates Opportunity for Rate Cuts, According to Reuters

By Karen Lema and Mikhail Flores

MANILA (Reuters) – Annual inflation in the Philippines grew at its slowest pace in over four years during September, attributed to a slowdown in food prices and decreasing transport costs, which provides the central bank with the opportunity for further interest rate reductions.

The consumer price index (CPI) increased by 1.9% in September compared to the same month last year, marking the smallest rise since May 2020. This figure is a decline from August’s 3.3% rise and is also below the 2.5% forecast from a Reuters poll.

Following the latest data, Finance Secretary Ralph Recto expressed that inflation could stabilize around 3.2% for the year, staying within the central bank’s target range of 2% to 4%.

"This gives the Bangko Sentral ng Pilipinas (BSP) more room to adopt an aggressive stance in easing monetary policy to foster quicker economic growth and assist the government in enhancing its revenue collections," Recto stated.

The BSP projected that inflation is likely to decrease in the coming quarters due to alleviating supply pressures in food markets and base effects related to higher consumer prices from the previous year.

"The balance of risks regarding the inflation forecast appears to favor a downward trend for 2024 and 2025, with a slight upward bias for 2026," the central bank noted.

This development brings the average year-to-date inflation rate to 3.4%. Meanwhile, core inflation, which excludes volatile food and energy prices, also moderated to 2.4% in September from 2.6% in August.

The slowdown in food inflation last month was largely due to a significant deceleration in rice price increases, which fell to 5.7% from 14.7% in August, influenced by base effects and reduced tariffs.

The central bank, which had cut its policy rate by 25 basis points to 6.25% in August—the first reduction in nearly four years—will convene on October 16 to determine the future course of interest rates.

BSP Governor Eli Remolona indicated that two additional cuts of 25 basis points each might be possible, one in October and another in December, as inflation continues to show a declining trend.