Philippines: Inflation surprised to the upside in June – UOB

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting assess the latest inflation figures release in the Philippines.

Key Takeaways

“Headline inflation recorded a big jump to 6.1% y/y in Jun (from 5.4% in May), surpassing our estimate and Bloomberg consensus of a 6.0% gain. It also marked the highest inflation rate since Nov 2018, largely driven by costlier food, transportation and electricity amid a steep depreciation in Peso (PHP).”

“Inflation will remain elevated and above Bangko Sentral ng Pilipinas (BSP)’s medium-term target range of 2.0%-4.0% for the rest of the year and into 1H23. This is mainly due to higher global oil and non-oil prices, the continued shortage in domestic fish supply, pronounced second round effects on prices of domestic goods and services, as well as adverse weather. We maintain our full-year inflation forecasts at 5.0% for 2022 (BSP est: 5.0%, 2021: 3.9%) and 4.0% for 2023 (BSP est: 4.2%), with upward revision risks.”

“The higher-than-expected inflation outturn in Jun and persistent currency weakness have bolstered the case for a 50bps hike in the BSP rate next month (Aug). This follows new BSP Governor Felipe Medalla’s comments last Wed (29 Jun) that BSP opened the door to bigger rate hikes should the PHP overshoot and stoke imported inflation. Hence, the movement of the PHP in the next one and half months together with the next release of the nation’s CPI data (on 5 Aug) and 2Q22 GDP numbers (on 9 Aug), as well as FOMC’s rate decision on 27 Jul will be primary factors justifying the need for a more aggressive BSP rate hike at the upcoming Monetary Board meeting on 18 Aug, in which we keep our call for a 25bps hike to 2.75% at this juncture.”