Angelo Taningco
Economist, Treasury Group

Inflation in the Philippines has accelerated to an above-than-expected rate in September, drifting closer towards the upper limit of the government’s inflation target range. We suspect that such phenomenon was likely more of cost-push rather than demand-pull inflation given that it was mainly driven by relatively sharp price upswings in transport and utilities amid rising oil prices and peso depreciation. As such, the inflation acceleration may very well be short-lived. On a year-to-date basis, inflation is still around the target range’s midpoint, implying that the overall inflationary environment remains manageable.

Headline consumer price index (CPI) inflation stood at 3.4% yoy in September, higher than Bloomberg’s market consensus, including our forecast, and the August reading of 3.1% yoy. Similarly, core CPI inflation rose to 3.3% yoy in September (market forecast: 3.1% yoy) from 3.0% yoy in August (Figure 1).

Figure 1: Monthly CPI Inflation Rates
Jan. 2015 – Sep. 2017
(yoy %)

 
The higher headline inflation rate for September versus August stems from stronger price upswings in six out of eleven commodity groups in the CPI, with relatively sharp price increases seen in the housing/water/ electricity/gas/other fuels and transport commodity groups. Food price inflation was slightly higher in September on the back of bigger price increases in certain major food products, specifically fish and vegetables.

By area, the National Capital Region (NCR) registered stronger inflationary pressures in September at 4.7% yoy versus 4.0% in August. In comparison, the inflation rate for areas outside NCR edged up to 3.0% yoy in September from 2.8% yoy in August.

On a quarterly basis, the third-quarter (Q3) headline and core CPI inflation rates averaged 3.1% yoy and 3.0% yoy, respectively, both around the midpoint of the government’s inflation target range of 2.0% – 4.0% (Figure 2).

Figure 2: Quarterly CPI Inflation Rates
Q1 2015 – Q3 2017
(yoy %)

 
On a year-to-date basis, the average headline and core CPI inflation rates over January-September were little changed at 3.1% yoy and 2.9% yoy, respectively. These numbers are around the midpoint of the government’s inflation target range of 2.0% – 4.0%, therefore telling us that the overall inflation environment still remains manageable. Since the September print was on the upside, we now revise slightly upward our full-year 2017 headline CPI inflation forecast to 3.1%, which is our initial projection we made at the start of the year. Note that the Bangko Sentral ng Pilipinas (BSP) expects inflation to average 3.2% yoy in 2017, and that such inflation trends are within the central bank’s outlook. Therefore, we still think that the BSP has enough room to hold steady its current monetary policy settings at least for the remainder of the year.

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