Philippine headline inflation slows down in August, high base effect to weigh on inflation through 2019

Philippine consumer price inflation slowed down in August. On a year-on-year basis, the headline inflation decelerated to 1.7 percent from July’s 2.4 percent, coming in below the lower end of the inflation target and the lowest since October 2017.

Meanwhile, core inflation also slowed down in the month to 2.9 percent year-on-year from July’s 3.2 percent. Sequentially, core inflation came in at 0.17 percent. Core rate now sits below the midpoint of the central bank’s target.

On a sequential basis, the consumer price inflation came in at 0.2 percent in August, a slight deceleration from July’s 0.3 percent. Food, ‘alcohol and tobacco’ and education prices added positively in the month. In the meantime, lower domestic fuel and electricity prices led to falls in the transport and ‘Housing and utilities’ components.

Rice and corn prices have not seen any considerable effect from the El Niño phenomenon. Sequentially, rice prices have fallen at an average of 0.5 percent sequentially in the last four months. On a year-on-year basis, rice and corn prices came in at 5.2 percent and 3.6 percent, respectively.

According to an ANZ research report, a high base effect will continue to be a drag on inflation throughout 2019. The risk of harsher than expected El Niño has likely passed. Moreover, recent monthly falls in domestic fuel and electricity prices have also been a drag on the headline inflation.

“We expect this trend to continue in the rest of the year. With inflation benign and two straight downside surprises to GDP growth, we also expect the Bangko Sentral ng Pilipinas (BSP) to cut its policy rate by a further 25bps in Q4”, added ANZ.