Inflation or the rate of increase in the prices of consumer goods and services slowed further to 2.1 percent in May, a development that could lead to a further cut in interest rates to revive the economy.
The latest reading was a tad lower from 2.2 percent in April 2020, and brought year-to-date inflation to 2.5 percent, near the lower end of the 2 to 4 percent target range of the Bangko Sentral ng Pilipinas (BSP).
In its latest inflation report, the PSA said the deceleration was due to the 5.6-percent drop in transport, followed by food and non-alcoholic beverages, 2.9 percent; clothing and footwear, 2.4 percent; furnishing, household equipment and routine maintenance of the house, 4.1 percent; and recreation and culture, 1.4 percent.
The economy has been on a lockdown since mid-March due to the coronavirus pandemic.
“Subdued demand due to the lockdowns has helped keep price gains in check for other items in the CPI (consumer price index) basket,” ING Bank Senior Economist Nicholas Mapa said.
“BSP’s latest inflation forecast points to 2.2% average inflation for the year with [BSP Gov. Benjamin Diokno] hinting that headline inflation may dip below 2% in the coming months on subdued demand and lower energy prices,” he added.
Mapa said “decelerating inflation and the need to provide additional stimulus to an economy headed for a recession” could allow the BSP to cut rates by at least 25 basis points in its June 25 policy meeting.
“BSP Governor Diokno continues to remind investors that he has ‘elbow room’ to cut policy rates due to the benign inflation environment, although we believe that the central bank will carry out at most a 25 bps rate cut before pausing for the rest of the year to keep real policy rates positive.”
The central bank has cut its policy rate by a cumulative 125 basis points this year, after assessing the impact of the Covid-19 outbreak on the economy.
The economy dipped 0.2 percent in the first quarter while unemployment zoomed to a record 17.7 percent in April.