Inflation was seen trending back to the 3-percent territory in the final few months of the year as consumption quickens and the local currency continues to show weakness against the dollar, according to the DBS Bank.
In his latest assessment of the local inflation dynamics, DBS Bank economist Gundy Cahyadi said the headline print could hit 3.1 percent again in September.
If this proves true, September will be the second consecutive month that inflation averages 3.1 percent, from only 2.8 percent in July and 2.7 percent in June.
“Two factors may be behind the gradual rise in core inflation. First, domestic demand remains firm even as it moderates. Private consumption growth is still trending circa 6 percent, while total investment growth is likely to come in near 10 percent this year,”
Cahyadi said.
“Second, a weakening peso is likely to have fueled inflationary expectations in the economy.
The peso is the worst-performing currency in Asia this year, having weakened by some 3 percent against the US dollar this year,” he added.
The weakness of the local currency was flagged in an earlier report on the manufacturing sector.
Following his commentary on subdued Purchasing Managers’ Index (PMI) in August, IHS Markit economist Bernard Aw said the weakened peso poses problems for the sector and partly to blame for the lackluster growth during the month.
The peso failed to boost exports and its weakened state has raised the cost of imports.
The higher cost of imported raw materials for manufacturers due to the cheap peso led to high vendor prices as manufacturers upped the charges and passed on comparably higher overheads to consumers.
Given this and the anticipated price impact of the proposed tax-reform package, the Singapore-based economist said the Bangko Sentral ng Pilipinas (BSP) should soon respond to inflationary pressures and drop broad hints as to where monetary policy
is headed.
“Expect the Bangko Sentral ng Pilipinas to turn more hawkish in the coming meetings.
We maintain our call for a 25-basis-point rate hike in the Philippines in each of fourth quarter of 2017 and first quarter of 2018,” Cahyadi said.
In its rate-setting meeting on September 21, the Monetary Board once again agreed to keep policy levers where they are, saying inflation risks have moderated enough such that consumer prices should prove within target this year and the next.
The Philippine Statistics Authority is scheduled to report the September inflation data on October 5.
1 comment
What is the formula of your computation that arrived to 17.2737% when the add on interest rate is 10%?