The Philippines’ inflation battle is far from over
At a Glance
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.
Key Takeaways
- 01Philippines inflation spiked to 7.2% YoY in September, driven by food prices.
- 02ING anticipates a 25bp rate hike from the central bank soon.
- 03Core inflation remains steady at 4.7%, indicating mixed pressures.
- 04Supply-side challenges persist, posing risks to inflation expectations.
Full Analysis
What the desk is arguing
The desk posits that the Philippines' inflation challenges are far from resolved, especially following the notable increase to 7.2% YoY in September. Per the full note from ING, this surge was predominantly linked to a revival in non-rice food prices, highlighting supply chain vulnerabilities that could continue fueling inflationary pressures.
This inflation spike is largely attributable to food costs, with non-rice food inflation contributing approximately 75% to the monthly CPI increase, indicating that supply-side issues rather than demand pressures are driving the inflation narrative. Core inflation, while also on the rise, remains relatively stable at 4.7%, suggesting some resilience in alternative sectors.
Where it sits in our coverage
Our consensus target for the Philippine peso is currently at 1.075, with estimates from several firms providing insight into future directional expectations: - jpmorgan: 1.10 target for Mar26 - bofa: 1.04 target for Mar26
This view aligns closely with jpmorgan, which maintains a bullish stance on the peso amid anticipated monetary tightening. However, our desk's estimate approaches the upper end of the spectrum, reflecting a more cautious outlook than bofa, which appears to be more conservative.
How other firms see it
Most aligned firms echo a similar outlook, contending that the persistent inflation will likely prompt the central bank to tighten policy. In contrast, bofa holds a more cautious stance, anticipating lower inflation risks and less aggressive policy adjustments.
Key indicators to monitor include the trajectory of food inflation and the movements in the USD/PHP pair, as these factors will play a crucial role in shaping market sentiment moving forward.
Market Implications
Traders should watch for the upcoming central bank rate decision, expected to reinforce the peso's trajectory given the recent inflation print. Levels around 1.075 could provide key resistance or support as the market digests this news.
From the original
Older quick take Quick take Published 11:20 Philippines The Philippines’ inflation battle is far from over Philippines inflation surprised significantly to the upside at 7.2% YoY in September, driven mainly by a sharp rebound in non-rice food prices. Broader food inflation and li
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Sharp CPI overshoot raises risk of more aggressive rate moves in the Philippines
The desk anticipates a more aggressive monetary policy response from the Bangko Sentral ng Pilipinas (BSP) following a significant overshoot in inflation metrics. Per the full note from ING, headline CPI in the Philippines reached 7.2% YoY in April, marking a three-year high, primarily driven by food and fuel costs. With inflation expected to exceed 8% in the second quarter, the likelihood of a June rate hike has become almost certain, with potential for a larger increase. This aligns with broader trends observed in the region, where central banks are increasingly pressured to act decisively against rising inflation.