Philippine headline and core inflation accelerate in July, BSP likely to hike interest rate

The headline and core inflation in Philippines accelerated sharply in July. The headline print came in above consensus expectations for the second consecutive month. The consumer price inflation accelerated in the month to 5.7 percent year-on-year from June’s 5.2 percent. On a sequential basis, it rose 0.5 percent in the month, a slight slowdown from June’s 0.6 percent.

Meanwhile, core inflation rate accelerated to 4.5 percent year-on-year from June’s 4.2 percent. The rise in prices were also widespread. Prices of alcoholic beverages and tobacco rose sequentially by a strong 1.1 percent, indicating the dawdling effect of tax hikes. In the meantime, prices of food bolstered to 0.9 percent sequentially from June’s 0.7 percent. Moreover, healthcare costs rose 1.2 percent, their most rapid rate in several years. In fact, apart from education costs, the rate of rise in all components was either faster or the same as in June.

Headline inflation has now stayed above the upper bound of the central bank’s target of 2 percent to 4 percent for five straight months. In all, the combination of strong domestic demand, lingering effect of tax reforms and increased global crude oil prices continue to be a challenging environment.

“The emerging inflation trajectory warrants further tightening in our view. While we expect the BSP to increase the O/N RRR rate by another 25bps next to 3.50 percent this week, a more aggressive rate hike cannot be ruled out”, stated ANZ in a research report.