Angelo Taningco
Economist, Treasury Group

Inflationary pressures in the Philippines gained traction during August, but have remained manageable with both headline and core inflation rates for the month staying close to the midpoint of the government’s 3% ±1 percentage point target.

Headline consumer price index (CPI) inflation stood at 3.1% year-on-year (yoy) in August, slightly above our forecast and that of the market (3.0% yoy). This was also higher than its July reading of 2.8% yoy. August was the second-consecutive month that the yoy headline CPI inflation rate inched up. Meanwhile, core CPI inflation leveled off at 3.0% yoy in August. The Philippine Statistics Authority (PSA) in its latest inflation report has revised upward the core CPI inflation rate for the month of July to 2.8% yoy from 2.1% yoy given “updated price survey reports received in selected provinces”. Over the January-August period, the headline and core CPI inflation rates averaged 3.1% yoy and 2.8% yoy, respectively.

Figure: Headline & Core CPI Inflation
Jan. 2015 – Aug. 2017
(yoy %)

 
The stronger headline CPI inflation for August versus July arose from a higher rate of price increases in seven out of eleven commodity groups in the CPI: food and non-alcoholic beverages, alcoholic beverages and tobacco, housing and utilities, transport, communication, recreation and culture, and restaurant and miscellaneous goods and services. By area, CPI inflation in the National Capital Region (NCR) was higher at 4.0% yoy in August versus its 2.8% yoy reading in areas outside the NCR. On a month-on-month (mom) basis, consumer prices across the country rose 0.3% in August, the same rate of increase in July.

We maintain our outlook of the inflation environment to remain manageable for the rest of the year. We believe that there is less likelihood for the occurrence of positive demand shocks and/or negative supply shocks that will fuel inflationary pressures in the domestic economy for the remaining months of the year. Against this backdrop, we keep our full-year 2017 headline CPI inflation rate forecast of 3.0% yoy.

Our inflation outlook implies that the monetary policy settings of the Bangko Sentral ng Pilipinas (BSP) will likely remain unchanged and will continue to be accommodative for the time being. Along this line, we believe the BSP’s Monetary Board will decide in its upcoming meeting on 21 September to keep its key interest rates and reserve requirement ratios steady.

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