July inflation eases to 4.7%

PHILIPPINES - In Brief 04 Aug 2023 by Romeo Bernardo

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The Philippine Statistics Authority reported today continuing downtrend in the headline inflation rate to 4.7% in July from 5.4% in June and a high of 8.7% in January. The headline rate reflects a slowdown in the month-on-month increase in the CPI and is well within the BSP’s 4.1% to 4.9% forecast for the month. Based on its current path, the headline rate may fall within the BSP’s 2-4% target as soon as September, which would bring the average inflation for the year to 5.3% (vs. our 5.5% forecast). Today’s inflation print supports authorities’ view that the Monetary Board would not need to match the US Fed’s 25bp policy rate hike last month. Based on signals from BSP Governor Eli Remolona, an extended pause is expected. Despite the downtrend, core inflation, at 6.7%, remains quite elevated and upside risks to consumer prices are again rising. These include additional pressures on food prices from external factors (India’s rice export ban, end of Russia-Ukraine grain deal) as well as weather problems (crop damage due to typhoons, high odds of El Nino by end-year). Closely watched right now is the price of rice which climbed 0.9% mom in July and is up by 4.2% yoy. The world price of rice has risen by over 15% in the year to July.[1] The upswing in global oil prices, if sustained, will add even more pressure. With all these risks, we expect the BSP to also keep an eye on changeable financial market sentiments given narrowed interest rate differentials. Overall, notwithstanding expectations of slowing economic growth as revenge spending eases and market talk of a policy rate cut, we think that prospect unlikely within the year. 2Q GDP is due out next week while the Moneta...