Inflation at 6.4%, Philippines faces further rate rises

MANILA – CPO inflation in the Philippines accelerated to 6.4% y/y in August from 5.7% y/y in July, well above expectations. This is the highest inflation rate since March 2009, and takes it further away from the top of Central Bank’s 2-4% inflation target range.

The rise in core inflation was more modest to 4.8% y/y from 4.5% y/y prior, but still the highest since April 2009.

On a sequential basis, the CPI index increased by 0.9% m/m in August compared with 0.5% m/m the previous month.

In a note on the data, ANZ Bank says the increase in prices was skewed towards a few categories. Food prices increased by a solid 1.6% m/m in August due to higher prices for rice and key food items as a result of weather and supply disruptions.

Recreational services also strengthened to 1.5% m/m from 0.3% m/m in July. And, at 0.8% m/m, transport costs remained elevated. The pace of increase in all other components was either slower or stayed steady during August.

ANZ said  CPI inflation in the Philippines has now remained above the upper bound of the BSP’s inflation target range for six consecutive months.

“The evolution of inflation also remains challenging,” ANZ says.

“The combination of robust domestic demand, lingering impact of tax reforms, weaker peso and elevated global crude oil prices suggests cost-push pressures will remain strong. Bringing inflation back below target will require more policy response.

“BSP has already increased the policy rate by 100bps since May, but real interest rates are still negative. We now expect the BSP to hike the policy rate by another 50bps to 4.50% at the upcoming September 27 meeting. Further moves beyond that cannot be ruled out.”

www.live.anz.com (ATI).