Philippines: Inflation edged higher in January – UOB

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting review the latest inflation figures in the Philippines.

Key Takeaways

“The Philippines’ headline inflation accelerated further to 8.7% y/y in Jan (from +8.1% in Dec), defying our expectation and Bloomberg consensus of a slowdown to 7.7% and 7.6% respectively. It marked the highest annual inflation rate since Nov 2008, and posted the strongest m/m gain since Jan 2000 at 1.7% (Dec: +0.3%) after a broad-based sharp increase across all food and non-food subsegments.”

“The unexpected surge in headline inflation and record-high core inflation for Jan have materially lifted the statistical base of our overall inflation projection for this year. A brighter global growth prospect painted by the IMF and an anticipated boost to the Philippines’ tourism sector from China’s reopening could also help to hold up domestic demand at a more sustainable pace than we have previously expected, amid firmer global energy prices at around USD80/bbl. Hence, we raise our full-year inflation forecast for the Philippines to 6.0% (from 4.5% previously, BSP est: 4.5%), and expect it to return to the central bank’s 2.0%-4.0% forecast range only in late 4Q23 (vs. previous forecast of late 3Q23).”

“Both stronger-than-expected Jan inflation and 4Q22 GDP readings have strengthened the case for a more restrictive monetary policy setting when the Monetary Board (MB) meets next Thu (16 Feb). Our revised inflation outlook for 2023 is also suggesting that the MB will have to do more to get inflation back to target in a sustainable manner. This alongside rising concerns of a higher-than-expected terminal Fed Funds Target Rate (FFTR) pose upside risks to our BSP outlook, which we have called for two more 25bps hikes in 1Q23 (Feb and Mar) before taking a pause at 6.00% thereafter.”