Philippine headline inflation could have reached 5 percent in August as pressures on the supply side continued, Singapore banking giant DBS said in a research report released on the eve of the scheduled government announcement of the official inflation data.
“CPI [consumer price index]inflation is likely to have accelerated to 5 percent in August. If so, this will be the first time it crossed the 5 percent mark since late-2011,” DBS said.
The central bank has said in its monthly forecast the inflation rate in August likely settled within 4.7 percent to 5.5 percent from 4.9 percent in July. DBS traced supply-side pressures to food and energy prices.
On the demand-side, it saw pressure coming from resilient consumption growth.
“Not that this alone will lead the Bangko Sentral ng Pilipinas [BSP] to panic, for we are likely to be near the peak of inflation at this juncture.
Indeed, we still expect CPI inflation to ease back toward 4 percent in 2015,” the report added.
Further tightening may be justified
Despite the better long-term outlook, DBS said August inflation is likely to justify more immediate policy tightening by the central bank as absorbing excessive liquidity is still warranted, particularly because loan growth remains strong, growing by 20 percent in the second quarter.
“If anything, the central bank prefers to make these policy adjustments from a position of strength. Following the strong second-quarter GDP [gross domestic product]data last week, the August CPI print is likely to be supportive of the central bank’s current policy leaning,” DBS said.
The Bangko Sentral ng Pilipinas (BSP) said its forecast incorporated the impact of reported increases in certain food products and in power rates due to weather-related supply and distribution constraints.
However, lower pump prices of oil are expected to partly offset those increases.
The central bank has repeatedly stressed that it stands ready to implement necessary policy actions to ensure that inflation expectations remain well anchored, and to limit any potential build-up of second-round effects of current price pressures.
Earlier, the BSP said it still expects inflation to average within its target ranges of 3 percent to 5 percent for 2014 and 2 percent to 4 percent 2015, but it warned that consumer prices may see some blips, or sharp fluctuations, during the period amid supply constraints.