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Senior Economist Julia Goh and Economist Loke Siew Ting at UOB Group reviewed the latest inflation data in the Philippines.

Key Quotes

“Headline inflation marched up further to a near 2-year high of 3.5% y/y in Dec (from 3.3% y/y in Nov), coming in line with our estimate (3.6%) but above Bloomberg consensus (3.3%). December’s inflation reading was lifted mainly by costlier food products, transportation, and catering services following the adverse impact of bad weather, the Asian Swine Flu, ongoing pandemic-induced restriction movement, and rising global oil prices.”

“Given that most supply-led factors are likely to linger and continue to drive inflation higher at the beginning of this year, we have revised upwards our 2021 full-year inflation forecast to 3.0% (from 2.5% previously; BSP forecast: 3.2%; 2019: 2.6%). Global oil prices have stayed above USD50/bbl since mid-Dec 2020, while COVID-19 containment measures were extended until 31 Jan 2021 due to resurging infections globally. However, still high unemployment and ongoing standard operating procedures are expected to cap any substantial rise in domestic demand.”

“An expected uptrend in inflation and a positive growth outlook painted by the central bank in the Dec 2020 monetary policy statement have raised the odds of an extended rate pause this year. Expectations for wider distribution of vaccines by 1H21 and effective execution of larger 2021 national budget would sustain the growth recovery as the year progresses. Hence, we expect BSP to hold the policy rate unchanged at 2.00% until end-2021. The next Monetary Board meeting is scheduled on 11 Feb.”