August inflation at 6.3%

PHILIPPINES - In Brief 06 Sep 2022 by Christine Tang

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Consumer prices continued to trek up in August but at a slower rate of 0.4% month-on-month. The slower climb translated into a headline inflation rate of 6.3%, down from July’s 6.4%, as softening crude oil prices helped offset some of the increases in food prices. Despite the deceleration in the headline rate, core inflation, which excludes selected volatile food and energy items,[1] quickened from 3.9% in July to 4.6% in August, indicating continuing broadening of price pressures.[2] Supply factors continue to threaten the near-term inflation outlook. Aside from sharply higher sugar prices and probable additional transport fare adjustments, recent developments in rice and energy markets warn of more upside risks. In particular, the price of rice, which has risen by a relatively modest 2.9% in the year to August, is threatened by projected lower domestic output due to reduced application of high-cost fertilizer, the reported agreement between Thailand and Vietnam to raise rice export prices,[3] and extreme weather problems in China and India that may affect rice harvests.[4] Rice makes up close to 9% of the CPI basket. In energy, the threat to electricity prices, which has risen by 9% in the year to July, is linked to the tight supply situation in the main Luzon grid.[5] The Monetary Board (MB) is scheduled to meet on September 22, a day after the US Fed. Markets expect the Fed to raise the fed funds rate by at least 50bp. In the event, we think there is more than even chance that the MB will raise its set of policy rates by 50bp. The peso has lost close to 1.5% of its value over a four-day period, reaching its weakest level of P57/$ at the close of trading today. The ...