Philippine headline inflation accelerates in January, likely to breach central bank’s target range in 2018

Philippine headline inflation came in above consensus expectations in January. The consumer price inflation accelerated to 4 percent from December’s 3.3 percent. Projections were for inflation to come in at 3.5 percent. On a sequential basis, the CPI was pushed higher by 0.1 percent by a combination of tax reform, weak PHP and global oil prices. All sub-indices of the CPI basket rose over the month, led by rises in alcoholic beverages, food and tobacco and health. On a sequential basis, consumer prices have been rising for 23 consecutive months.

Meanwhile, core prices also accelerated in the month. Core inflation rose to 3.9 percent, a five-year peak. Core prices have been trending up in the last few years on the back of solid domestic demand. As anticipated, the implementation of the first package of tax reforms pushed prices up in utilities, transport and sweetened beverages.

If the Philippine peso’s softness continues because of high trade deficits, prices of tradeables are expected to remain under pressure. According to an ANZ research report, inflation is expected to breach the central bank’s target range this year. Meanwhile, monetary policy tightening appears to be necessary.

“We expect the central bank to commence policy tightening, starting with a 25bps hike in March. The BSP has repeatedly stressed the importance it places on keeping headline inflation within its 2-4 percent target range”, stated ANZ.

Strong domestic demand is expected to keep inflationary pressures robust, as opposed to the BSP’s stance that price drivers are temporary, added ANZ.

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