Inflation slows down in November

PHILIPPINES - In Brief 05 Dec 2018 by Romeo Bernardo

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Headline inflation eased to 6.0 percent year-on-year in November from 6.7 percent in October, falling near the lower end of the BSP’s forecast range of 5.8-6.6 percent for the month. This is due largely to slower price increases in selected food items namely rice, meat, fish, fruits, and vegetables, as well as decelerating non-food inflation following the decline in global crude oil prices. However, core inflation accelerated to 5.1 percent from 4.9 percent in the previous month, reflecting second round impacts from previous months’ supply shocks. This may also be seen in rising prices of services in the CPI basket.Our revised inflation outlook sees headline inflation falling from 5.3% this year to 3.9% in 2019, the latter already reflecting the latest government decision to implement the second tranche of fuel excise tax increases starting January, but not the impact of the rice tariffication bill. The latter is still awaiting ratification by the lower house before it will be sent to the President for signature. The BSP said earlier that 2019 inflation will fall to 3.5% because of freer rice trade.With the negative month on month inflation rates in the last two months, we expect a pause in monetary authorities’ interest rate hikes. As it is, with a total 175bp increase in the set of policy rates to date, money growth has slowed significantly to 8.9% in October from 18.2% in May. Tighter liquidity conditions may also be gleaned from markedly higher bond yields in the short end of the yield curve (increase of over 250bp ytd), which also reflects a number of corporate fund raising activities. At this time, we are penciling in a smaller 50bp rate hike in 2019 to match exp...