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According to Nicholas Mapa, senior economist at ING, base effects from the 2018 price spike have all but faded out, which together with storm-affected food price gains, pushed Philippines December headline inflation well-past market expectations (median forecast at 2.0%) to hit 2.5%. 

Key Quotes

“With full-year 2019 inflation at 2.5%, Bangko Sentral ng Pilipinas (BSP) was successful in keeping price gains in-check for most of 2019.”

“We expect inflation to edge higher in 2020 as “reverse” base effects kick in, while the scheduled excise tax of fuel products takes effect later this month. This moves in line with our expectation for inflation to “bounce then settle” with headline inflation rising back to the 3% level and then remaining stable for the rest of 2020.  Factoring in the reverse base effects, we expect inflation to average 3.2% and as high as 3.4% should oil prices edge higher due to possible supply side disruptions.”

“The surprise inflation print in December should keep the BSP on alert as they gauge price developments going into 2020.”

“We continue to believe that the BSP will have the scope to ease monetary policy further in 2020, with the first rate cut slated for the February meeting.  The Peso may enjoy some short term strength with some market analysts pulling back expectations for a central bank rate cut given the upside surprise to inflation.”