Inflation breached 6%

PHILIPPINES - In Brief 05 Jul 2022 by Romeo Bernardo

---

June inflation quickened to 6.1%, equivalent to a month-on-month (mom) increase of 0.9%. Food inflation went up by 1.1% mom, led by three product groups with mom inflation exceeding 2%: meat products, oils and fats and sugar, while non-food items rose 0.8% mom, traced notably to transport-related goods and services (+2.7% mom). Compared with previous months, price increases in June were more spread out across items in the CPI basket, indicating that the earlier shocks to food and energy costs were already working their way through to prices of other goods and services. We expect headline inflation to still trek up and will likely breach 7% in Q4 following another round of transport fare hikes in July and more firms poised to raise prices to reflect the higher costs of restocking. We think our average 5.5% forecast for 2022 is still reasonable for now, but with inflation likely to fall back within the BSP’s target only by the middle of next year, we expect the 2023 average to exceed the 4% upper end target. Although the June headline figure is within the BSP’s forecast of 5.7% to 6.5%, we think the third 25bp policy rate hike signaled earlier by the new governor all but certain at this point. Governor Felipe Medalla told Bloomberg last week that monetary authorities will consider a 50bp rate hike if there is “overshooting” of the peso that cannot be controlled by direct BSP intervention in the foreign exchange market.[1] The Monetary Board will meet on August 18, by which time it will have additional data on US Fed policy rate action as well as 2Q Philippine GDP growth. [1] https://www.bloomberg.com/news...