Philippines headline inflation exceeds above expectations in November

The headline and core inflation rates of the Philippines both rose above expectations in November. The consumer price inflation accelerated to 2.5 percent year-on-year in November from 2.3 percent in October. Market forecast was for the headline inflation to ease to 2.2 percent in the month. Isolating the food sub-index that contributes 39 percent to the CPI basket, prices were up 3.3 percent year-on-year.

The annual adjustment in alcoholic beverages and tobacco kept its ascent, rising 6.5 percent year-on-year. Meanwhile, the core inflation, which excludes volatile items of food and fuel, also accelerated in November to 2.4 percent from 2.3 in October. Consensus expectations were for 2.3 percent.

Average inflation is expected to drop below the central bank’s 2 percent to 4 percent target range for the second consecutive time, noted ANZ in a research report. With solid growth in consumer spending and strong private investment, inflation is likely to average at around 3.1 percent year-on-year next year, added ANZ. If the government is successful in hiking excise taxes on oil by mid-2017, the central bank projects an additional rise of 0.6 percentage points in average inflation in the next 12 months.

The Philippines central bank, BSP, is expected to be one of the first Asian central banks to tighten its monetary policy. The average inflation is likely to accelerate to 3.1 percent year-on-year and 3.2 percent year-on-year in 2017 and 2018 respectively. The expansionary stance of the government next year is likely to further underpin the strong fundamentals.

Considering the central bank’s 15 to 24 months of monetary policy transmission lag, the central bank is likely to go back to the tightening table by the third quarter of 2017. This should provide BSP ample time to migrate structural excess liquidity to its term deposit facility.

On a sequential basis, the headline inflation rose 0.6 percent in November, driven by rises in price in alcoholic beverages, food and tobacco.