Philippine inflation cools again, opens door to rate cut

[MANILA] Philippine inflation eased to a seven-month low in December on slower gains in food and transport costs, reinforcing expectations the central bank is done with interest rate tightening.

The consumer price index rose 5.1 per cent in December, the statistics agency said on Friday, the lowest increase since May.

Analysts expect inflation to gradually return to the Bangko Sentral ng Pilipinas' (BSP) 2-4 per cent target this year, making interest rate hikes no longer necessary.

"With inflation trending back to the BSP's target of 2-4 per cent, the case for the BSP to reverse its stance as early as the second quarter 2019 has gained considerably," said Nicholas Mapa, senior economist at ING Bank in Manila, adding that a rate cut should boost growth this year.

December's outcome is below the 5.6 per cent forecast in a Reuters poll and the central bank's 5.2-6.0 per cent estimate for the month.

Last month's inflation figure, which marks the second straight month the pace of price increase has slowed, brings the average rate for 2018 to 5.2 per cent, outside the central bank's 2-4 per cent target for 2018 and 2019.

Core inflation, which strips out volatile food and fuel items, slowed to 4.7 per cent in December from the previous month's 5.1 per cent. Consumer prices fell 0.6 per cent from the previous month.

Rising fuel prices and higher taxes on certain commodities pushed up inflation last year, and it reached a near-decade high in September and October before it started to ease the following month.

The central bank next meets on Feb 7 to review policy. It left rates on hold on Dec. 13 after five straight hikes totalling 175 basis points that brought the rate on its reverse repurchase facility to 4.75 per cent.

REUTERS