Angelo Taningco
Economist, Treasury Group

Philippine headline CPI inflation accelerated to 5.7% yoy in July from 5.2% in June, a new record-high. This is consistent with our forecast and is higher than the market’s median estimate of 5.5%. Core CPI inflation climbed to 4.5% yoy in July from 4.3% in June. The average headline CPI inflation spanning the January-July period is 4.5% yoy. We maintain our 2018 inflation forecast of 4.7% but we note the risk is tilted to the upside. Rising inflation coupled with peso depreciation pressures bolstered the case for a “strong” monetary policy adjustment. We maintain our call for a 50bps policy rate hike by BSP’s Monetary Board on 9 August.

The faster yoy inflation clip in July was on the back of sharper price increases in nine out of eleven commodity groups in the CPI, including food and non-alcoholic beverages; alcoholic beverages and tobacco; housing, water, electricity, gas, and other fuels; and transport. By area, NCR recorded a higher inflation rate of 6.5% in July versus areas outside NCR (5.5%). On a mom basis, headline CPI inflation leveled off at 0.5% in July after 0.6% in June.

We have argued that the likely culprits for the elevated inflation are food supply disruptions; TRAIN’s excise taxes on select products (petroleum products, sweetened beverages, tobacco); approved hikes in minimum wages for several regions and transport fares; elevated global oil prices; and peso depreciation. We still expect the aforementioned inflation drivers to persist throughout the remainder of the year. Moreover, there are signs that demand-pull inflation is gaining traction alongside cost-push inflation. Against this backdrop, we continue to foresee headline inflation to remain above 5% for the rest of the year, with its peak potentially in August.

Figure: CPI Inflation & Inflation Target

  CPI = Consumer Price Index

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