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UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting reviewed the latest set of inflation data in the Philippines.

Key Quotes

“Headline inflation surprisingly moderated to 2.4% y/y in Aug from a 6-month high of 2.7% y/y in Jul… Cheaper food, housing rental, power rates and retail fuel were key factors behind the unexpected decrease in Aug inflation amid a stronger Peso (PHP) and a 15-day re-lockdown in and around capital Manila from 4 Aug.”

“Year to date, inflation stood at 2.5% in Jan-Aug (Jan-Aug 2019: 3.0%). The near-term inflation outlook remains in line with our expectations despite the unexpected soft reading in Aug. There are also no signs of spike-up in consumer price pressures as yet though some domestic demand indicators have shown gradual improvement following the opening of the economy. Hence, we maintain our full-year inflation estimates at 2.5% for 2020 and 2021 (BSP forecasts: 2.6% for 2020 and 3.0% for 2021).”

“The future inflation path remains within the central bank’s 2.0%-4.0% target range. There are lingering concerns as the number of COVID-19 cases surged which could derail the recovery path. However, negative real interest rates limit the scope for further rate cuts. We think the central bank is likely to preserve its ammunition for the time being while continuing to deploy other targeted non-monetary policy tools as needed.”

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