Philippines: Inflation figures surprised to the downside – UOB

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

Key Takeaways

“Headline inflation picked up for a fourth consecutive month but at a slowerthan-expected pace of 8.1% y/y in Dec (UOB est: +8.4%, Bloomberg est: +8.2%, Nov: +8.0%). This brought the full-year inflation rate to an average of 5.8% in 2022 (2021: 3.9%), matching BSP’s forecast but coming in a tad lower than our projection of 5.9%. Costlier food, energy bills, recreational goods & cultural services, restaurants & accommodation related expenses, as well as personal care were key factors lifting the headline inflation further last month, which fully counteracted the effects of easing energy prices and a recovering Peso (PHP).”

“For 2023, inflation risks are still tilted to the upside due to both external and domestic forces. It is expected to revert to BSP’s medium-term inflation target range of 2.0%-4.0% only in late 3Q23, at the earliest, with year-ago high base effects, full impact of restrictive monetary policy on consumption, and moderating global growth lending a helping hand. This will result in a full-year inflation rate of 4.5% (BSP est: 4.5%).”

“We think that the slower-than-expected headline inflation outturn in Dec is less likely to throw BSP off its rate-hike path. But, the softer inflation reading coupled with gloomier global growth prospects will allow BSP to continuously embark on a slower rate hike path in the coming months. We stick to our BSP call for two more 25bps hikes in 1Q23 before taking a pause at 6.00% thereafter. The first Monetary Board Meeting of the year is slated for 13 Feb.”