Philippines inflation will fall to its lowest in over 22 years at less than 1 percent in June to account for rapid falls in commodity prices in the past year, a senior central bank official said on Monday. A stream of comments from policy makers in recent weeks pointing to lower inflation has supported market expectations that the central bank will keep cutting interest rates after sharp cuts since December.
Inflation has not been below 1 percent since March 1987, when prices fell 0.6 percent from a year earlier, and would be significantly lower than March's inflation of 6.4 percent. Still, average inflation this year would still be around 3.42 percent, a level forecast by the central bank at its rates meeting in April, the official told reporters.
Inflation in 2008 was 9.3 percent. "Inflation will fall below 1 percent in June because of base effects," the official, who asked not to be identified because of the sensitivity of the subject, said. Last year, commodities prices rose to record levels but have since fallen sharply, so annual comparisons in monthly consumer price data are having a dramatic affect on headline inflation. This is known as the base effect.
The central bank has said inflation was clearly easing and would likely be within the government's official target of 2.5 to 4.5 percent this year, fuelling expectations of more rate reductions in coming months to boost the sluggish economy. It also said last week it expects annual inflation in April to come in between 4.5 percent and 5.4 percent against 6.4 percent in March.
Official April inflation data is due to be released on Tuesday at 0100 GMT. The median in a Reuters poll was for April inflation of 4.7 percent, which would be a 16-month low. Monetary authorities have reduced policy rates by a total 1.5 percentage points since December, bringing the overnight borrowing rate to 4.5 percent, the lowest in 17 years.