Philippine headline inflation accelerates in January, BSP likely to cut interest rate by 25 bps in March

Philippine headline inflation accelerated in the month of January, owing to higher food and fuel prices and the elimination of favourable base effects. On a year-on-year basis, inflation accelerated to 2.9 percent. On a sequential basis, the consumer price inflation came in at 0.6 percent after a 0.7 percent rise seen in the prior month.

The heavily weighed ‘food and beverages’ and ‘housing and utilities’ components which together account for around 60 percent of the CPI basket, increased 0.9 percent sequentially and 0.6 percent, respectively. Higher ‘transport’ costs also added positively to inflation.

Core inflation accelerated to 3.3 percent year-on-year in January from prior month’s 3.1 percent. Markedly, the number of items with prices rising above 4 percent year-on-year as well as their weight in the basket has increased.

With favourable base effects eliminated, food and transport prices in January rose 2.2 percent year-on-year and 3 percent year-on-year. In spite of inflation in January, nearing the mid-point of the target band and looming risks Governor Diokno recently stated that the chances of an upside breach to the inflation target of 2-4 percent remain remote.

“Our current call is for the BSP to cut its policy rate by 25bps at its March meeting, although the odds for a cut at tomorrow’s meeting have increased”, said ANZ in a research report.