Inflation climbs; a new price series

PHILIPPINES - Report 06 Mar 2018 by Romeo Bernardo and Christine Tang

Today the government released estimates of the February inflation rate showing prices climbing by 4.5%, up from 4% in January. The price increase, which reflects adjustments for higher consumption taxes, particularly oil excises, is slightly above analysts’ median 4.2% forecast for the month (we were expecting 4.3%) but within the BSP’s 4.0-4.8% forecast. Notwithstanding upticks in long-dated benchmark government bonds, which in part reflect the market’s higher inflation expectations, as well as continuing peso weakness, we still think the BSP will keep policy rates on hold when the Monetary Board meets later this month, relying in the meantime on the term deposit facility to manage liquidity, and its foreign exchange reserve pile to moderate exchange rate volatility. Also, the latest PMI data show some softness in economic expansion in 1Q18 that we expect the BSP to consider as well.

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