Philippines August CPI: Inflation stays low

Despite poor weather conditions, price pressures remain manageable in the Philippines. Headline inflation moderated at the margin, falling to 0.6% y/y in August, from 0.8% in July. The fall in energy prices continues to exert downward pressure on inflation, and even food inflation has remained manageable despite ongoing concerns around the El Niño weather conditions.

In today's print, inflation fell due to lower transport and fuel costs, while services inflation remained broadly constant. Food inflation stood at 1.2% y/y, with only perishable items such as vegetables showing signs of higher inflation. Core prices remain benign at 1.6% y/y.

Post the data release, Governor Tetangco said that the BSP is monitoring liquidity conditions, and that it stands ready to act if they deteriorate. This is consistent with the central bank's stance that while activity levels remain healthy, its main concerns centre around volatility and market liquidity. 

"We think the BSP is comfortable with the policy stance, but we acknowledge outside risks of easing in the reserve requirement ratio for banks if liquidity conditions deteriorate due to capital outflows", says Barclays.

While inflation is low currently, policymakers in the Philippines are still vigilant on weather risks. Agriculture production turned negative in Q2, and the government has indicated that it will import food stocks to avoid any potential shortfalls in 2016. 

"We do not foresee the BSP changing its policy stance in 2015", added Barclays.