Philippine inflation rises above expectations in August, BSP likely to hike rates by end-2017

The Philippine consumer price inflation came in above expectations in August. The headline inflation came in at 3.1 percent year-on-year, an acceleration from July’s 2.8 percent. On a seasonally adjusted basis, the CPI rose 0.27 percent sequentially, after gaining 0.20 percent in the prior month, indicating that the underlying inflationary pressure is rising. Surprisingly, core inflation, which strips the volatile food and energy prices, rose sharply to 3 percent year-on-year in August, considerably overshooting market expectation at 2.1 percent.

In 2017, the Philippine economy has been performing quite well. But since the economic growth is mainly driven by solid infrastructure investment, resulting in widening fiscal and trade deficit, the market is keeping a close watch on the inflation dynamics. The figures released on Tuesday highlight the market views that the central bank is expected to hike interest rates before the end of this year, noted Commerzbank in a research report.

The new BSP governor, Nestor Espenilla, stated recently that the central bank is ready to hike rates if it sees signs that the economy is expanding too fast. While the economic growth remains decent, the central bank remains under pressure to weaken given the deterioration in the current account, stated Commerzbank.

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