Inflation projected to ease further on weak oil prices, falling demand

DoF 040418 - Inflation projected to ease further on weak oil prices, falling demand

INFLATION is likely to ease further in the coming months as global oil prices continue to drop and domestic demand remains subdued due to business closures and movement restrictions, the Department of Finance (DoF) said.

In an economic bulletin Wednesday, the DoF said the slowdown in core inflation last month indicates further “easing inflation in the next few months.”

Headline inflation in March eased further to 2.5% from 2.6% in February and 3.3% a year earlier. Core inflation, which strips out volatile items like food and fuel, slowed to 3% last month from 3.2% in February.

“Still, it is important that in this time of expanded community quarantine (ECQ), the supply chain of basic goods and other necessary items, while subject to requirements of public health, should not be broken,” the DoF said.

PNB economist Jun Trinidad said low oil prices on top of weak domestic demand and higher unemployment will likely drive inflation lower.

In April, Mr. Trinidad said headline inflation will likely ease further to 2% or less.

“Beyond logistical issues, weaker commercial demand with the shutdown of malls and restaurants, and higher unemployment emerging as painful trade-offs to stabilizing the rising COVID-19 infections, will blend with low oil prices to eventually show up in faster disinflation,” Mr. Trinidad said in a research note.

He said for the second quarter, PNB expects “lackluster” demand-side pressures to overcome supply-side shocks emerging from the lockdown restrictions.

“Amid COVID-19’s deflationary (impact), BSP (Bangko Sentral ng Pilipinas) may cut its policy rate by 50 basis points (bps) plus an RRR (reserve requirement ratio) cut of 100 bps (when) the Monetary Board meets in May, to cushion downside demand risks,” the DoF said.

President Rodrigo R. Duterte extended the Luzon-wide ECQ to April 30. It was originally due to end on April 12. — Beatrice M. Laforga

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