Inflation seen to settle at 4.9% in September

MANILA, Philippines—The rate of increase in consumer prices in the Philippines may settle at 4.9 percent year on year in September, reflecting mild upward pressure in the near term, according to DBS Group.

The Singapore-based financial services group said in a research note that, month on month, prices could also rise due to hikes in the prices of electricity and fuel.

The National Statistics Office is set to release inflation data for September Wednesday.

The NSO earlier reported that, based on 2000 prices, inflation in August was pegged at 4.3 percent, easing from 4.6 percent in July.

DBS’ forecast for September is higher than that of the Bangko Sentral ng Pilipinas, which expects inflation this year to range between 3.8 percent and 4.8 percent based on 2000 prices.

Last week, BSP Governor Amando M. Tetangco Jr. said faster growth in the prices of some food items, and price pressures brought on by the depreciation of the peso could have been offset by the benign movement in the costs of other commodities in September.

Tetangco said that, based on the BSP’s expectations for September, full-year inflation could still fall below the government’s target ceiling of 5 percent.

DBS said the BSP would likely keep interest rates low to maintain the healthy uptick in loan growth of the last few months to support the domestic economy.

“We see no change in the overnight borrowing rate for the rest of the year,” the group said, referring to the current level of 4.5 percent.

In a separate research, Citigroup Global Markets said Philippine inflation is peaking soon, “perhaps at less than 5 percent [followed by] a downtrend.”

The investment banking services firm said that the “fiscal storm” and sovereign debt problems in developed markets threatening the global economy would still weigh negatively on consumer and business sentiment.

“Receding inflation risk that could uplift sentiment would tangle with renewed fear of job erosion,” Citigroup said.

“At best, we expect food consumption to get a lift from easing inflation risk coupled with strong US dollar effects for the rest of the year,” it added.

Last month, DBS said it lowered its full-year inflation forecast to 4.9 percent from 5.3 percent, citing “tame CPI [consumer price index] numbers in recent months and more signs of uncertainty on the external front.”

The group noted that annual inflation eased in August from the July level, allowing the BSP to adopt a wait-and-see attitude amid a slowdown of the global economy.

“With slow government spending and delay in private-public partnership projects thus far, the Bangko Sentral ng Pilipinas will have to shoulder the burden of lifting growth and refrain from any form of tightening in the near future,” DBS explained.

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