Philippine headline inflation accelerates above expectations in December, BSP likely to ease policy in Q1

Philippine headline inflation came I above expectations in December on higher food and transport prices and less favourable base effects. The recent increase in crude oil prices, if sustained, might pose further upside risk to inflation, noted ANZ in a research report.

Sequentially, headline inflation rose 0.7 percent in the month, after rising 0.3 percent in the prior month. Food prices rose 1.1 percent sequentially, accounting for the major share of the sequential rise. Increased ‘housing and utilities’ and ‘transport’ costs also added positively to inflation.

Meanwhile, core inflation stayed the same at 2.6 percent on a year-on-year basis in December. Markedly, the number of items with prices rising above 4 percent year-on-year as well as their weight in the basket has risen.

On a year-on-year basis, the headline inflation accelerated to 2.5 percent from November’s 1.3 percent. Market expectations were for a rise to 2 percent. With favourable base effects greatly eliminated, food and transport prices rose 1.7 percent and 2.2 percent year-on-year, respectively. Food contributed 0.7 percentage point positively, while transport contributed 0.2 percentage points to the headline rate. Annual changes for almost all other components remained stable.

Domestic petrol prices rose around 13 percent year-on-year, in line with the rise in global oil prices through December. More recently, geopolitical developments in the Middle East have pushed up Dubai Crude prices to USD 68.27 per barrel. Further rise poses a significant upside risk to the inflation outlook in 2020.

“Despite the uptick in December inflation and looming geopolitical risks Governor Diokno recently stated that the chances of an upside breach to the inflation target of 2-4 percent remain remote. We, therefore, maintain the view that the BSP will resume monetary policy easing in Q1”, added ANZ.