Philippine inflation slows, but more central bank tightening expected

PHILIPPINE headline inflation slowed for the first time this year as the increase in food and transport costs eased, but a higher core inflation and weak currency would likely prompt the central bank to continue hiking interest rates.

The consumer price index (CPI) rose 6.3 per cent in August , the Philippine Statistics Authority said on Tuesday (Sep 6). It matched the median forecast in a Reuters poll and was within the central bank’s projected range of 5.9 per cent to 6.7 per cent for the month.

Core inflation, however, which strips out volatile food and fuel items, accelerated to 4.6 per cent from July’s 3.9 per cent.

“The Bangko Sentral ng Pilipinas (BSP) is prepared to take further policy actions to bring inflation towards a target-consistent path over the medium term,” the BSP said in a statement, adding upside risks continue to dominate the inflation outlook.

Inflation in the January-August period averaged 4.9 per cent, exceeding this year’s BSP target band of 2 per cent to 4 per cent. The BSP expects inflation to average 5.4 per cent this year, and ease to average 4.0 per cent next year and 3.2 per cent in 2024.

The BSP has raised interest rates by a total of 175 basis points this year, taking the benchmark overnight reverse repurchase facility rate to 3.75 per cent, in efforts to bring inflation back within target and support a sagging peso.

SEE ALSO

Philippine peso continues to fall, with fears of more interest rate hikes to come

DECODING ASIA

Navigate Asia in
a new global order

Get the insights delivered to your inbox.

The peso has further lost ground against the bullish dollar, however, hitting a record low of 56.99 on Monday, as the greenback surged ahead of the Federal Reserve’s widely expected interest rate hike later this month.

Ahead of the BSP’s Sep 22 policy-setting meeting, its governor, Felipe Medalla, on Friday told a Reuters Newsmaker event the magnitude of a US rate hike will be a big factor in the BSP’s decision on whether to tighten policy further.

“We see the (Fed) decision to be the biggest influence on their (BSP’s) September meeting, as failure to keep up will translate to an even faster CPI surge,” said Emilio Neri, lead economist at Bank of the Philippine Islands. REUTERS