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

Key Takeaways

“Headline inflation accelerated for the third straight month to a 14-year high of 8.0% y/y in Nov (from +7.7% in Oct), matching our estimate but surpassing Bloomberg consensus’ 7.8% gain. It was driven by higher prices of almost all consumer price index (CPI) components, particularly food, passenger transport services, restaurants & accommodation, and personal care services, amid a weak currency (PHP) during the month.”

“Given that the year-to-date inflation (+5.6%) has exceeded our full-year target of 5.5% and Dec inflation is likely to jump further to 8.5% y/y, we tweak our 2022 full-year inflation estimate to 5.9% (from 5.5% previously, BSP est: 5.8%). But we maintain our inflation projection for 2023 at 4.5% (BSP est: 4.3%), in view of base effects, impact of restrictive monetary policy on consumption, and a weaker global growth next year.”

“Record headline and core inflation readings in Nov have reinforced the case for a 50bps hike in the overnight reverse repurchase (RRP) rate when the BSP’s Monetary Board meets next Thu (15 Dec). It will mark the final meeting of this year, taking the RRP rate to 5.50%. However, it is unlikely to mark the end of BSP’s rate hike cycle as yet given that the US Fed signaled a higher terminal rate for longer, and the Philippine inflation would remain above BSP’s 2.0%-4.0% medium-term target range through 1H23. We reiterate our RRP rate projection of 50bps hike in 1Q23 (+25bps each in Feb and Mar 2023), before taking a pause at 6.00% thereafter.”