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Philippines: Inflation likely to pick up in Q4
MANILA, Philippines — Inflation may accelerate in the fourth quarter, averaging 3.5 percent due to the continued weakening of the peso and rising oil prices, according to Deutsche Bank.
In a report, Deutsche Bank chief economist Michael Spencer said headline inflation would average 3.5 percent in the fourth quarter.
Deutsche Bank, likewise, expects inflation to rise to 3.2 percent this year and to 3.4 percent in 2018.
Inflation kicked up to a five-month high of 3.4 percent in September from 3.1 percent in August due to faster price adjustments in food.
Spencer said the country’s gross domestic product (GDP) growth would average 6.4 percent this year before slowing down to 5.7 percent in 2018.
“Growth remains above potential, which should push inflation higher next year, causing BSP to start raising rates around mid-year,” Spencer said.
As the US Federal Reserve is seen raising interest rates by 100 basis points over the next 15 months, the economist pointed out the BSP would have to do at least two rate hikes next year to support the peso and stop inflation from rising beyond the two to four percent target.
Spencer said the return to a current account (CA) surplus should help mitigate the depreciation of the peso resulting from a narrowing interest rate gap in the US.
He explained the weak peso which depreciated by about seven percent year-on-year in the first half is beginning to show up in consumer price inflation.
The local currency has breached the 51 to $1 level as early as August mainly due to the expected CA shortfall this year amid strong imports to support the country’s expanding economy.
The country recorded a CA surplus of $15 million in the second quarter.
“The trade balance has been improving for a little more than a year and net foreign income and services trade continue to grow. We expect each of these trends to continue through the end of the year,” he said.
Source: http://www.philstar.com/business/2017/10/16/1749110/inflation-likely-pick-q4