Philippines: Inflation gathers traction in September – UOB

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

Key Takeaways

“Headline inflation reverted higher to 6.9% y/y in Sep, affirming our view that the blip in Aug (at 6.3% vs 6.4% in Jul) was temporary. It marked the highest reading since Oct 2018, in line with our estimate (7.0%) and Bloomberg consensus (6.9%). Costlier food, electricity bills, passenger transport services and housing rental were key factors pushing up headline inflation amid a sharp depreciation in Peso (PHP) and higher interest rates during the month.”

“We expect the national consumer price pressures to intensify further and surpass the 7.0% level in Oct as a result of an approved fare hike for public transports from 3 Oct and persistent weakness in PHP. Based on the current global commodity price and currency outlook, the Philippines’ headline inflation is also expected to remain above 7.0% for Nov and Dec this year before gradually inching down back to the BSP’s 2.0%-4.0% medium-term target range in 2H23. This will result in a full-year inflation rate of 5.5% for 2022 (BSP est: 5.6%) and 4.5% for 2023 (BSP est: 4.10%), in our projection.”

“Given that BSP’s primary goal is to achieve a target-consistent inflation path amid an even faster pace of Fed tightening, we stick to the view that BSP will roll up its sleeves to hike again at the two remaining monetary policy meetings this year. We project the overnight reverse repurchase (RRP) rate to be raised by another 50bps in Nov and 25bps in Dec, bringing the RRP rate to 5.00% by year-end. Thereafter, we expect the BSP to press the rate pause button at 5.00% through 2023 unless the global and domestic landscape warrants a change.”