Philippines November CPI inflation rises from low levels

Inflation rose to a five-month high in November, a large upside surprise. While overall price pressures remain under control, food inflation rose to 1% m/m, the largest uptick in food prices since July 2014 as the El Niño cycle intensified in H2 15. The significant acceleration in food inflation was driven by higher prices for vegetables, which jumped 8.4% m/m as supplies were disrupted due to Typhoon Lando. Headline inflation remains below BSP's target range on low prices for energy and transportation. Core CPI inflation rose to 1.8% in November, remaining largely benign.

Bangko Sentral has been on the sidelines throughout 2015 and is likely to leave rates unchanged next week. Even with the pickup in inflation, BSP appears comfortable with its policy stance, emphasizing that growth and inflation risks stem largely from poor weather and the uncertain global backdrop. Deputy BSP Governor Guinigundo recently told the press that the central bank sees interest rates as being at an appropriate levels and said BSP has moved in a pre-emptive fashion to prepare itself for potential rate hikes in the US.

"We expect 2015 average inflation to come in at 1.4%, and forecast 2016 CPI inflation will rise to 2.4%. Following today's print, we remain comfortable with our forecasts, as they incorporate a manageable pace of core inflation and a modest increase in energy costs in 2016. We continue to believe the medium-term risks to inflation centre on El Niño and its potential impact on agricultural prices", notes Barclays.