Philippine headline inflation accelerates in October, BSP likely to hike interest rate in Q1 2018

The Philippine headline inflation accelerated in the month of October. The consumer price inflation rose to 3.5 percent year-on-year, accelerating for the fourth consecutive month and coming in line with expectations. Even though utility prices expectedly rose over the month, the monthly rise in food prices was moderate, resulting in overall gains of 0.3 percent month-on-month. Even if the headline figure was in line with expectations, core inflation dropped a bit.

The persistent increase in oil prices are expected to intensify calls by transport groups to hike the minimum jeepney fare. The transport regulatory body in October deferred the decision to raise fares, asking transport groups to improve services before granting the price rises. Worsening the upside risks, the taxi fare hikes are likely to be rolled out as soon as the transport agency retests and reseals all taxi meters to guarantee compliance with the new fare formula, noted ANZ in a research report. Total transport costs contribute 7.8 percent to the CPI basket.

Demand-pull pressures continue to be solid and are expected to keep upside risks to inflation in the medium term.

“While we still peg average inflation at 3.0 percent and 3.3 percent in 2017 and 2018 respectively, the timing of the tax reform is crucial in the adjustment of our forecasts. Until there is clarity on the tax reform, inflation expectations will remain in flux”, added ANZ.

The domestic demand continues to strengthen. Combined with the imbalances of elevated credit growth, excessive activity in real estate, and the deterioration of the current account, a tighter monetary policy seems necessary. According to ANZ, the central bank might hike interest rate by 50 basis points in the first quarter of 2018.

FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest