Money Matters

PH economy should do well with easing inflation

MORE GOOD NEWS FOR FILIPINOS. Economists are seeing that inflation rates will ease below the 2% target of the Banko Sentral ng Pilipinas (BSP) by Q3 of 2019.

This current downtrend of inflation means that consumers are enjoying lower prices of basic necessities. It also makes it the perfect time to buy goods and services to help the economy.

Inflation Rate to possibly drop below BSP’s 2019 target

According to Standard Chartered Bank economist for Asia Chidu Narayanan, inflation is expected to further drop below 2% in August and September. This drop is expected after inflation eased to a 31-month low of 2.4% in July.

“We expect inflation to drop below two percent in August-September, in line with our view from the beginning of the year, helping push average inflation in 2019 down to 2.7 percent. A combination of lower food prices, lower oil prices, and a high base effect will help contain inflation,” said Narayanan.

HSBC economist Noelan Arbis echoed the sentiment. He said that inflation is expected to continue to drop below the BSP’s 2-4% target range for the year in September.

“Headline inflation continues to cool as expected, and it is likely to drop further in the months ahead. The contribution of food, alcoholic drinks, and tobacco prices to headline prices are their lowest levels in nearly three years, which is a sharp reversal from last year’s trend,” said Arbis.

He added that core inflation remains largely stable, while oil prices continue to drop.

“We expect headline inflation to average three percent in 2019, factoring in possible upside surprises during the typhoon season. It is worth noting that El Niño, which transpired in the first half of the year, risks stronger typhoons in the second half,” explained Arbis.

READ: Philippine Economic Growth to Pick Up in 2019 – AMRO

Inflation downtrend means lower prices and interest rates

This downtrend gives the BSP more room to ease their monetary policy stance to boost the country’s economy.

In the first seven months of the year, inflation averaged 3.3%. To compare, in the same period from the previous year, inflation accelerated to 5.2% from 2.9% in 2017. This exceeded the BSP’s 2-4% target due to elevated oil and food prices, as well as a weak peso.

READ: June inflation sinks to 2.7%

Since inflation is currently within the target of the BSP, interest rates are low, making it the perfect time to borrow money. And with lower commodity prices, more Filipinos will be empowered to spend and simulate the economy further.

In addition, the Philippine economy remains attractive for foreign investors. This is most evident in the continued support for the government’s “Build, Build, Build” infrastructure program. 2020 should be a big year for infrastructure, which hinges on a speedy passage of the new year’s budget.

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