Inflation in Philippines

Philippines - Inflation

Inflation climbs back within target range in December

Consumer prices rose 0.66% over the prior month in December, up from the 0.25% month-on-month increase in November. Prices of food and non-alcoholic beverages rose sharply likely due to typhoon-related crop damages, while prices for alcoholic beverages and tobacco, and transport also ticked up in the month.

Inflation increased to 2.5% in December from 1.3% in November, returning within the lower half of the Central Bank’s target band of 2.0%–4.0%. Core inflation, which excludes volatile food and energy prices, climbed to 3.1% in December from 2.6% in November.

Overall, average annual inflation clocked in at 2.5% in 2019, down notably from average inflation of 5.2% in 2018 and marking a three-year low.

Turning to 2020, inflation should continue to rise higher, boosted by stronger economic activity, the pass-through from the Bank’s monetary policy easing, and the implementation of several new excise taxes. Moreover, risks are skewed to the upside due the potential impact of heightened geopolitical tensions on crude oil prices.

Commenting on the implications for the BSP’s monetary policy agenda, Euben Paracuelles, analyst at Nomura, noted:

“We reiterate our forecast that BSP’s policy rate cut cycle is over because of rising inflation. Governor Benjamin Diokno was quoted as saying after the data release today that BSP “may” resume cutting its policy rate as early as Q1 […] However, we think this does not suggest that another rate cut is imminent and it will still likely depend on how the data will evolve, particularly on inflation.”

FocusEconomics Consensus Forecast panelists expect inflation to average 2.9% in 2020, which is unchanged from last month’s projection. For 2021, panelists see average inflation of 3.2%.