Inflation seen staying below 8 percent

MANILA, Philippines — Inflation is expected to remain below eight percent in the last two months of the year, although economists are divided over whether the Bangko Sentral ng Pilipinas (BSP) needs another interest rate hike in December to contain persistent price pressures.

Security Bank Research and Deutsche Bank both expect full-year inflation to average 5.9 percent, as declining global oil prices can help temper rising consumer prices following October’s 44-month high of 7.8 percent.

Security Bank chief economist Angelo Taningco said inflation likely reached its peak in October, with price increases expected to remain below eight percent in November and December.

However, Security Bank maintained its forecast that the BSP would raise its policy rate by another 25 basis points to 5.75 percent in December, citing persistent underlying price pressures.

Core inflation, which excludes volatile food and energy items, rose to a 37-month high of 5.4 percent in October from 4.7 percent in September, bringing its January-to-October average to four percent.

Transport inflation surged to 20.1 percent, while electricity, gas and other fuels rose 19.7 percent. Food inflation eased to 6.4 percent from 6.8 percent, despite faster increases in rice prices.

Security Bank expects gross domestic product (GDP) growth, or the expansion of the economy’s output, to slow to 2.7 percent in the third quarter, with full-year growth at three percent, as weak investor sentiment and delayed government spending weigh on activity.

Deutsche Bank economist Junjie Huang, for his part, said the BSP’s larger-than-expected 50-basis-point rate hike in October was likely sufficient for now, citing mixed signals on inflation.

While headline inflation accelerated to 7.8 percent in October and underlying price pressures remained elevated, Huang noted that the increase was concentrated in energy-related costs rather than across a broad range of goods and services.

“The mixed inflation signals argue for giving previous hikes time to work before considering further action in the near term,” Huang said.

Deutsche Bank expects inflation to average 7.2 percent in November and December, bringing its full-year forecast to 5.9 percent.

Huang warned that another rate hike in December could further weaken already-soft domestic demand, particularly as higher interest rates would do little to address rising energy costs driven by supply-side pressures.