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Philippines: Over 6% inflation seen in August-September 2018
MANILA, Philippines — Dutch financial giant ING Bank said inflation may breach the six percent level both in August and September.
Joey Cuyegkeng, senior economist at ING Bank Manila, said there is an upside risk on the inflation front especially with the latest reports of rice prices continuing to increase due to supply-related constraints.
“We believe that inflation could breach six percent in the next two inflation reports,” he said.
Cuyegkeng’s view contradicts the forecast of BSP Governor Nestor Espenilla Jr. that inflation will not touch six percent.
Inflation kicked up to a fresh five-year high of 5.7 percent in July from 5.6 percent in June due to higher oil and food prices, weak peso, and the impact of the implementation of Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law.
The BSP has so far raised interest rates by 100 basis points to rein in inflationary expectations. It lifted benchmark rates by 25 basis points for the first time in more than three years on May 10 followed by 25 basis points in June 20, and 50 basis points – the biggest increase in 10 years – last Aug. 9.
“If our view is correct then further tightening is likelier,” Cuyegkeng said.
The economist said the BSP has retained its hawkish stance not only about to reassure the market that inflation would ease to within the target range of two to four percent next year but also to reduce concerns of a weak peso also fuelling inflation.
“With a hawkish stance BSP addresses two concerns. We expect the tightening to continue with another 25-basis point hike as early as the September meeting or as late as the November meeting,” he said.
Meanwhile, Cuyegkeng said the net inflow of foreign direct investments (FDIs) would further rise in the fourth quarter.
He cited the share offering of a large food and beverage conglomerate that could generate as much as $2.4 billion worth of additional funds.
“We believe that foreign participation would be significant, but we cannot yet estimate the equivalent amount of net inflow. The conglomerate’s interest to purchase a significant amount of a leading beverage company would reduce the net inflow,” he said.
Cuyegkeng added a significant amount of net inflow could provide some support for the peso similar to the foreign acquisitions of local companies in late third quarter and in early fourth quarter.
Source: https://www.philstar.com/business/2018/08/22/1844639/over-6-inflation-seen-august-september-2018#epYu0QAFGi1Y3BIf.99