Philippines rates: Could the uptick in August inflation be an indicator for the region?
Philippines’ August inflation accelerated to 5.3% yoy from Jul’s 4.7%, rising for the first time in seven months on higher food and sticky fuel pressures. Concerns over a supply shortage and dependency on imports drove rice inflation up 8.7% yoy (9.6% weight), contributing to the overall food’s 8.1% rise (vs Jul’s 6.3%). With inclement weather hurting crop damage, the government has imposed price ceilings on rice sales to contain market manipulation or hoarding activities, while assuring that retailers will be compensated for potential losses. The country is also dependent on imported energy, leaving domestic prices vulnerable to swings in international costs, apart from transport fares which had been partly responsible for the sharp rise last year and minimum wage adjustments.
We note that inflation prints in the region (Philippines, joins South Korea and India - India: Weather, inflation, growth) are showing signs of bottoming. Adverse weather and tightening global commodity supply (particularly rice) has pushed up food costs, which could impact EM Asia where food tends to be a relative heavyweight in the basket. Supply cuts by key oil producing countries has also seen prices climb amidst fading base effects for inflation. Administrative and fiscal measures are likely to be the first line of defence to fight food-related shocks, as easing core inflation prints allow monetary policy to bide time. Central banks will prefer to monitor developments to anchor inflationary expectations and prevent generalisation in price pressures. Most are expected to stay on hold in the upcoming rate reviews but maintain their hawkish rhetoric and emphasise that they stand ready to tighten policy further, if required.
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