October inflation shoots up to 7.7%

PHILIPPINES - In Brief 04 Nov 2022 by Romeo Bernardo

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The BSP’s job just became even harder. Today’s announcement that October inflation reached 7.7% exceeded analysts’ expectations (median forecast of 7.2%) and is near the upper end of the BSP’s 7.1%-7.9% forecast for the month. Core inflation, which strips out the more volatile food and energy items and points to broadening price pressures, also jumped from an upwardly revised 5% clip in September to 5.9% in October. Following the US Fed’s latest 75bp rate hike, BSP Governor Medalla tried to preempt another bout of peso selling by announcing that the Monetary Board will match the Fed’s rate action when it meets two weeks hence. This will bring the key local policy rate to 5%, a level last seen in early 2009. Today’s inflation surprise, alongside more recent damages to agricultural output due to typhoons, as well as net upside risks from global and local factors, can be expected to further feed into inflation expectations. We are raising our inflation forecast to 5.8% this year (from 5.6%) with the headline rate likely to stay above the BSP’s upper end 4% target for longer, which will take the 2023 average inflation rate closer to 5%.