Philippines: Inflation surprised to the downside – UOB

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

Key Takeaways

“The Philippines’ headline inflation decelerated further to an eight-month low of 6.6% y/y in Apr (from +7.6% in Mar). The pace of the easing came in faster than our estimate and Bloomberg consensus (both at 7.0%), largely credited to a persistent slowdown in prices of selected food items and fuels as well as lower electricity tariffs during the month. The ebbing of year-ago high base effects also played an essential role in pulling down the headline inflation in Apr.”

“Nevertheless, services related price inflation continued to edge higher last month while core inflation just showed a small blip to 7.9% (Mar: +8.0%). The return of El Niño could reverse the food price inflation downtrend over the next couple of months. Recognising this and other lingering upside risks to the inflation outlook (i.e. higher electricity rates, above-average wage adjustments, and impact of African Swine Fever infections), we maintain our 2023 full-year average inflation projection of 6.0% for now (BSP est: 6.0%, 2022: 5.8%).”

“Although headline inflation has come off faster than our expectations for two straight months in Mar-Apr, demand price pressures remain stubbornly high as revealed by both services and core inflation prints. The soon-to-be-released 1Q23 GDP outturn is also crucial to affirm the robustness of domestic demand. It will raise the risk of further broadening of price pressures and the emergence of additional second order effects should the BSP surrender its inflation fight too soon. With this and the US Fed’s 25bps rate hike yesterday (4 May), we expect BSP to press ahead with its interest rate hike of 25bps on 18 May.”