October 2023 Updates: Still-hot inflation calls for updated views
We have revised our forecast amid a host of factors that continue to put pressure on inflation and growth.
Business confidence weakened and expansion plans declined in the 3rd quarter of 2023 (per BSP 3Q2023 BES) amid higher prices of raw materials and production costs. This may translate into moderate investment growth for the rest of the year, dampening our growth outlook.
Meanwhile, headline inflation further steered to the upside at 6.1% in September versus 5.3% in August 2023, driven primarily by the uptick in prices of food and non-alcoholic beverages, restaurants and accommodation services, and transport.
Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. asserted that the BSP stands ready to resume tightening should adjustments in transport fares and second-round effects jeopardize inflation expectations. We think the higher-for-longer narrative for the RRP rate may further persist until the latter part of 2024, with lesser cuts than anticipated, hence the upside bias to our 5.5% call for 2024.
Lastly, the USD/PHP exchange rate continued to trade within a range of 56.40 to 56.90. Nevertheless, the BSP governor remains unfazed by the peso’s relative weakness, noting that the recent depreciation was due to the broad strength of the US dollar that impacts not only the peso but other regional currencies as well.
Considering these developments, particularly inflation, we have revised our full year inflation forecast for 2023 to 6.4%, and have put an upside bias to our Target RRP rate projections outlined as follows:
For more information on the performance and outlook for several macroeconomic indicators, as well as local macroeconomic news, please download the full report below.
October 2023 Updates (October 10, 2023)
Higher inflation and weaker business confidence call for revised forecasts.Download