ING: PH’s ‘inflation monster’ could have finally breached 6%

The country’s inflation rate likely accelerated further in August, breaching the 6-percent level for the first time since 2009, Dutch financial giant ING said.

As the “inflation monster rears its head higher,” the inflation-targeting Bangko Sentral ng Pilipinas (BSP) should stay on guard and further hike interest rates before yearend, ING said in a research note released on Friday.

But for the upcoming policy meeting on Sept. 28, the BSP would likely not move at all, the research said.

“We see inflation surging past the 6-percent mark for the first time in over a decade from 5.7 percent in July, consistent with the consensus centered on 6 percent,” ING said.

The last time Philippine annual inflation rate exceeded 6 percent was in March 2009, hitting 6.6 percent.

“Bad inflation data will keep the central bank (BSP) on its toes, even as the currency has stabilized from a Turkish-led downturn in early August,” it added.

The 5.7-percent inflation rate in July marked the highest in nine years, based on the government’s recomputation of historical consumer price data using 2012 as the base year.

ING noted high inflation and the twin deficits—referring to merchandise trade and government fiscal position—have kept the Philippine peso under intense pressure, resulting in a 6.6-percent year-to-date depreciation.

“The question is, will the BSP overlook the inflation data and wait for the recent 100-basis point rate hike to take effect? The current economic backdrop suggests the BSP policy tightening has further room to run,” ING said.

ING expects the BSP to pause in the next meeting, before becoming aggressive in the final quarter of the year.

In July, the BSP hiked interest rates by 50 basis points, bringing the overnight borrowing rate to 4 percent.

The BSP has raised its key interest rates by a total of 100 basis points this year in an effort to curb price pressures and bring back the inflation rate to its targeted range of 2-4 percent.

In the first seven months of this year, the inflation rate has averaged 4.5 percent.  Results have exceeded the BSP’s target in the last five months.

The BSP began an inflation-targeting framework of monetary policy in 2002. This policy is focused mainly on achieving a low and stable inflation, supportive of the economy’s growth objective.

This approach entails the announcement of an explicit inflation target that the BSP promises to achieve over a given time period.