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

Key Takeaways

“Headline inflation eased for the first time in six months to 6.3% y/y in Aug after hitting a 45-month high of 6.4% in Jul. The Aug inflation outturn defied our expectation for a rise to 6.5% and Bloomberg consensus for holding steady at 6.4%. It was mainly pulled down by a smaller gain in prices of food, fuels and electricity during the month.”

“However, nearly 70% of 12 CPI components saw a further jump in their prices, indicating that inflation could remain sticky in the near term. Global commodity prices are still subject to upside risks while the country’s currency (PHP) is still prone to a weakening bias, which are wildcards for the inflation outlook going into 4Q22 and 2023. Hence, we believe the blip in Aug inflation is temporary. Inflation will likely rebound to surpass 7.0% by year-end before decelerating and returning to the BSP’s 2.0%4.0% medium-term target range in 2H23. We raise our full-year inflation projections to 5.5% for 2022 (from 5.0% previously, BSP est: 5.0%) and 4.5% for 2023 (from 4.0% previously, BSP est: 4.2%).”

“As the latest inflation outturn is likely to be a temporary blip, it will not deter BSP from hiking rates further this month (22 Sep), in our view. We stick to our call that BSP will hike its policy rates by another 25bps on 22 Sep and thereafter keep the overnight reverse repurchase (RRP) rate at 4.00% through 4Q22 and 2023, unless both global and domestic environments move in unexpected directions.”