Philippine inflation slows, but more tightening expected

The consumer price index (CPI) rose 6.3% in August, the Philippine Statistics Authority said on Tuesday. It matched the median forecast in a Reuters poll and was within the central bank’s projected range of 5.9% to 6.7% for the month.

Core inflation, however, which strips out volatile food and fuel items, accelerated to 4.6% from July’s 3.9%.

“The (Bangko Sentral ng Pilipinas) is prepared to take further policy actions to bring inflation toward a target-consistent path over the medium term,” the BSP said in a statement, adding upside risks continue to dominate the inflation outlook.

Inflation in the January-August period averaged 4.9%, exceeding this year’s BSP target band of 2% to 4%. The BSP expects inflation to average 5.4% this year, and ease to average 4.0% next year and 3.2% in 2024.

The BSP has raised interest rates by a total of 175 basis points this year, taking the benchmark overnight reverse repurchase facility rate to 3.75%, in efforts to bring inflation back within target and support a sagging peso.

The peso has further lost ground against the bullish dollar, however, hitting a record low of 56.99 on Monday, as the greenback surged ahead of the Federal Reserve’s widely expected interest rate hike later this month.

Ahead of the BSP’s Sept. 22 policy-setting meeting, its governor, Felipe Medalla, on Friday told a Reuters Newsmaker event the magnitude of a US rate hike will be a big factor in the BSP’s decision on whether to tighten policy further.

“We see the (Fed) decision to be the biggest influence on their (BSP’s) September meeting, as failure to keep up will translate to an even faster CPI surge,” said Emilio Neri, lead economist at Bank of the Philippine Islands.

(Reporting by Neil Jerome Morales; Editing by Martin Petty)