Slower August inflation may just be a ‘short reprieve’, says HSBC

The softer inflation print in August might just be “a short reprieve” for Filipino consumers as the recent typhoon onslaught could push up prices again this month, a development that may prompt the Bangko Sentral ng Pilipinas (BSP) to temporarily hit pause on its easing.

Aris Dacanay, economist at HSBC Global Research, said that inflation risks in September are “tilted to the upside” after Tropical Storm “Enteng” (international name: Yagi) and the intensified monsoon rains drenched most parts of Luzon and destroyed P659.01 million of farm output based on the latest government tally.

READ: Philippine inflation eases to 3.3% in August

The possible flare-up this month, in turn, might convince the BSP to defer any rate cuts at its October monetary policy meeting, Dacanay said, adding that the central bank may resume easing in December to close the year with another 25-basis point (bp) reduction in the benchmark rate.

Toll on food supply

“Like July CPI (consumer price index), we might also see a sharp month-on-month jump for the month of September as Typhoon “Yagi” takes a toll on food supply,” the HSBC economist said.

“The inflationary impact of Yagi—which we will only find out the week before the October rate-setting meeting—may build a case of a temporary rate pause, unless rice prices are finally unhinged,” he added.

Inflation slowed to 3.3 percent in August, the softest reading in seven months and easing back to within the 2 to 4 percent target range of the BSP.

READ: Quality jobs, cheap goods will give Filipinos comfortable lives – Marcos

Broken down, food inflation cooled to 3.9 percent in August after rice price gains moderated to a 10-month low of 14.7 percent. State statisticians said rice price inflation may fall to single-digit level in September due to reduced tariffs on the staple grain.

The slower inflation last month vindicated the central bank’s decision to cut rates early and ahead of the US Federal Reserve, which is widely expected to kick off its own easing cycle this month.

Benchmark rate

At its Aug. 15 meeting, the policymaking Monetary Board (MB) slashed the benchmark rate by 25 bps to 6.25 percent. That kicked off what BSP Governor Eli Remolona Jr. had called a “calibrated” easing cycle while hinting at another cut of the same size either at the October or December meeting of the MB.

Separately, Japanese investment bank Nomura said the rice tariff cut back in July was not felt in August, prompting it to raise its 2024 average inflation forecast to 3.1 percent from 2.8 previously.

But Nomura gave a more dovish forecast than HSBC, penciling in two 25-bp rate cuts at each of the last couple of meetings of the BSP this year.

“Beyond that, we also expect BSP to cut in the first three meetings in 2025 before pausing from there,” Nomura said.

“This would bring the RRP (reverse repurchase) rate to 5 percent by May 2025, i.e. a total of 150 bp cuts in this cycle. The Fed’s rate cuts, which our US team expects to begin in September, also support further easing by BSP,” it added. — Ian Nicolas P. Cigaral

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