Philippine inflation pressures persist despite softer CPI
At a Glance
The desk assesses Philippine inflation dynamics, noting that while headline consumer price index (CPI) has softened slightly, core inflation remains elevated, indicating persistent price pressures. Per the full note from ING, core inflation is stubbornly anchored above 4%, and rising food prices, particularly rice, exacerbated by El Niño, pose significant upside risks to inflation expectations. This scenario supports the desk's forecast for an additional rate hike in Q4, as targeted inflation rates are likely to be missed for a prolonged period. Our outlook diverges from consensus views given the continued strain from external and weather-related factors affecting key food commodities.
Key Takeaways
- 01Philippine core inflation remains sticky above 4% YoY.
- 02Headline CPI softened only slightly to 6.1% in August.
- 03Rice price inflation is accelerating, indicating underlying supply risks.
- 04Potential for additional rate hike in Q4 2023 supported by prevailing inflation risks.
Full Analysis
What the desk is arguing
The desk posits that Philippine inflation challenges are far from resolved, driven by resilient core inflation rates and concerning trends in food prices, particularly rice. According to ING, headline CPI eased only marginally to 6.1% year-on-year in August, reflecting ongoing supply pressures. As inflation risks tilt upward, it reinforces the expectation of a potential interest rate hike before the year ends.
Despite a slight improvement in food and beverage inflation, which moderated to 4.6% YoY, the continued acceleration in rice prices—reaching 19.4% YoY—illustrates persistent supply chain vulnerabilities. Coupled with El Niño impacts, these factors could hinder disinflation efforts, fostering an environment where inflation exceeds targets longer than anticipated.
Where it sits in our coverage
Our current consensus target for the Philippine peso (PHP) against the US dollar (USD) is 1.075 with a range of 1.04 to 1.12, which reflects a cautious but potentially bullish positioning depending on overall inflation trajectory. The jpmorgan target of 1.10 for March 2026 aligns with this outlook, while bofa holds a more bearish stance at 1.04.
This desk's analysis suggests an expectation for greater inflationary pressures than the cross-firm consensus anticipates, specifically highlighting risks that could push inflation above suggested targets through Q4 2023. The view leans towards the upper bound of the consensus range due to these significant inflation risks.
How other firms see it
In general, firms like jpmorgan are positioned in alignment with our outlook, advocating for a stronger PHP in the face of sustained inflation. In contrast, bofa remains cautious, casting a more pessimistic view on both inflation and currency strength, which indicates diverging paths in monetary policy responses across institutions.
With inflation factors at play, especially in agriculture and food sectors, it's essential to monitor the trajectory of the USD/PHP, as it reflects the overarching economic sentiment and bank policy expectations, particularly in light of the adjustments expected from the Bangko Sentral ng Pilipinas (BSP).
Market Implications
The market should watch key support/resistance levels around 1.075 for PHP/USD as inflationary pressures persist. Traders should be alert for any sudden shifts in policy signals from the Bangko Sentral ng Pilipinas, especially as we approach the end of Q4.
From the original
Older quick take Quick take Published 04:38 Rates Philippines Philippine inflation pressures persist despite softer CPI While Philippine headline CPI eased marginally, persistent core inflation and rising food-price risks from El Niño suggest prices will stay above target
Related speeches
4 itemsThe Philippines’ inflation battle is far from over
The Philippines faces persistent inflationary pressures, with September's year-on-year inflation rate unexpectedly rising to 7.2%, largely due to non-rice food prices according to ING Research. This significant uptick points to supply-side challenges, which are expected to keep inflation elevated in the near term. A potential 25 basis point rate hike later this month appears increasingly likely as the central bank responds. This dynamic suggests a tightening stance could emerge amidst ongoing global economic uncertainties.
Philippines inflation eases, but BSP rate hikes still Likely
The ING desk argues that despite a slight easing in Philippines headline inflation to 6.4% YoY in June, the acceleration in core inflation to 4.4% and sticky services/utility costs support the case for further BSP rate hikes. The data undershot market expectations, but the underlying persistence keeps the tightening bias intact. No consensus targets are available from our internal coverage for USD/PHP, and no high-impact events are scheduled in the next 30 days. The key takeaway is that rate hike expectations will keep the peso supported near-term.