Philippines’ CPI inflation accelerates in September, likely to average below BSP’s lower bound this year

The headline CPI inflation and core inflation both accelerated in Philippines in September. The nation’s consumer prices increased 2.3 percent, the first figure within the target range in 17 months. Food prices in the country continued to increase with double-digit rises in the vegetable sub-index.

Prices in the country’s capital and selected regions increased due to tighter supply of vegetables. In the meantime, the Philippines’ core inflation accelerated at a slower pace to 2.3 percent year-on-year in September from 2 percent in August. Inflation in the country is expected to average below the central bank’s lower bound for the second consecutive year in 2016, noted ANZ in a research report.

“We recently lowered our average inflation forecasts to 1.6 percent y/y in 2016 and 2.9 percent in 2017 (from 1.9 percent and 3.0 percent respectively)”, added ANZ.

Even if the Philippine government were to widen the coverage of excise taxes on fuel products, the direct effect should have a convenient impact on average headline inflation. There is a slight risk of inflation breaching the upper band of the central bank’s target range of 2 percent – 4 percent despite the strong growth outlook.

This might give the central bank additional time to facilitate the migration of excess liquidity to the term deposit facilities. The central bank, since the first TDF auction in June, has been gradually increasing the weekly auction volume, reaching PHP 110 billion by October 5. Apart from the stock of the excess funds parked under BSP’s overnight deposits and TDF window, M3 money supply continues to grow 11.8 percent year-on-year in August.

“Robust credit growth and a persistent rise in net foreign assets in PHP terms will likely contribute to strong growth in liquidity”, stated ANZ.