September inflation climbs to 6.9%

PHILIPPINES - In Brief 05 Oct 2022 by Romeo Bernardo

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Local prices continued to increase in September, climbing 0.4% mom and 6.9% yoy. The headline rate itself is unsurprising, falling within the BSP’s 6.6% to 7.4% forecast for the month. Fish, sugar and flour-based products were the main contributors to food price inflation while electricity prices were a major factor for non-food price inflation. Although softening world crude oil prices in recent months has helped to moderate local price increases, various factors will continue to exert pressure on prices ahead, including the impact on food supply of bad weather including rice outputs, a sharply weaker exchange rate, creeping rounds of cost-push adjustments in prices of goods and services, increased odds of higher electricity rates should a major distributor resort to sourcing power supply from the spot market, and probably higher global rice prices. Inflation averaged 5.1% in the first nine months of the year. We expect the rate to end 2022 around the current high level for a full-year average 5.6%. With continuing price pressures and the headline rate likely to return to below 4% only in 3Q 2023, we expect the full-year average to reach 4.4%, above the BSP’s 2-4% target. In a veiled statement that “outlines way forward,[1]” the BSP has signaled concern about the rapid depreciation of the peso which touched P59/$ in recent trading. Indeed, it is unclear how aggressively the BSP will respond to an evidently hawkish US Fed. In a press interview,[2] Governor Medalla said that although monetary authorities do not want to match the Fed, they would still have to respond, admitting that the BSP has been intervening actively in the foreign exchange market. It is likely that a...