The rate of inflation slightly rose to 2.9 percent in December compared to that in the same month last year, from 2.8 percent in November, according to the data released Friday by the National Statistics Office. Core inflation, which excludes food and energy items, fell to 3.3 percent in December from 3.4 percent in November.
The moderate rise of inflation should be good news because it can help the government invigorate growth without much concern about the rising prices. Inflation may no longer be the main concern of the policymakers and the government may have more space to loosen the monetary policies and make supporting economic growth a priority.
The continuing debt crisis in Europe and the tentative U.S. recovery have hurt the demand for exports, the key driver of the Philippines’ economy. The policymakers understand that export- and investment-driven economic model was no longer sustainable for the Philippines and reforms are needed to prevent a sudden slump in growth.
Last October, Bangko Sentral ng Pilipinas (BSP) cut its key policy rate by 25 basis points to an all-time low of 3.5 percent, citing benign outlook for inflation and worries over growth prospects. The cut was the fourth for the last year and took total cumulative easing since the start of 2012 to 100bp.
On a positive note, it was reported in November that the Philippines’ economy grew at a faster rate than expected in the third quarter. According to the data released by the National Statistical Coordination Board, the country’s gross domestic product (GDP), which measures the annualized change in the inflation-adjusted value of all goods and services produced by the economy, rose 7.1 percent in the quarter ending Sept. 30 compared to that in the same period last year, up from 6 percent in the second quarter and above the analysts’ expectation of 5.4 percent.
Investors feel that if the global growth remains as weak as expected over the current year and the crisis in the euro zone continues to intensify, further monetary easing is likely in 2013. Market players sense that the medium-term growth prospects would be more favorable if the increased political stability stimulated the private sector growth and the administration's fiscal consolidation program enabled higher levels of public investment in the Philippines.