Inflation momentum slows

PHILIPPINES - In Brief 06 Nov 2018 by Romeo Bernardo

---

Headline inflation was unchanged at 6.7% year-on-year in October, reflecting slowing inflation momentum with the month-on-month rate decelerating to 0.3% from 0.9% in the previous month. The easing of price pressures may be traced largely to steady food prices even as prices of non-food items, tied particularly to utilities, housing, communication and other services climbed, in part reflecting second round impacts of supply shocks in previous months. (see second to the last column of Table). Signals of demand side pressures may be gleaned from the uptick in core inflation, which went up to 4.9 percent in October from 4.7 last month.We think the headline inflation rate, albeit still elevated, will continue to fall in the remaining months of 2018, with the recent drop in oil prices as well as tighter monitoring of rice prices keeping supply side pressures in check. A new decision to raise minimum wages by a modest sum in Metro Manila is not expected to appreciably affect this outlook. We are thus reducing our inflation forecast for 2018 from 5.5% to 5.3%, still expecting the headline rate to fall within the BSP’s target only by 3Q2019.The Monetary Board is scheduled to meet Thursday next week (November 15). The Deputy Governor told the press in late October that a rate hike remains “on the table” while adding the obligatory reminder that any decision will still be data dependent. Given the slowdown in inflation momentum and the recent strengthening of the peso, as well as the slower domestic liquidity growth and sharp increases in local bond yields perhaps in anticipation of larger public and private issuances ahead, we think that there is a good chance that the BSP will...