08 Jul 2018 / by AP Securities (formerly Angping & Associates Securities)
FREE Special Report: Which PSE Stocks are Affected by Rising Inflation?
Our Partner Broker’s Analysis
Inflation Spikes by Unexpected 5.2% in June
Prices of goods and services reached the highest in more than five years. The faster growth was attributed to a 6.1% increase in prices of food and non-alcoholic beverages. NEDA attributed it to a confluence of factors including high oil and rice prices and peso depreciation. In Metro Manila alone, inflation accelerated by 5.8% in June from 4.9% last May. Sec. Pernia said that the BSP’s Monetary Board may have had a ‘slip in timing’ for raising policy rates.
The CPI acceleration may reinforce the consensus view that the BSP is behind the curve in terms of raising rates. We think though that even if the BSP hiked rates since last year, inflation would have still breached the BSP’s target.
This is because of oil prices. Recall that in 2008, full-year inflation reached 8.3% (+3.3 pts above the BSP’s target) as oil price accelerated by 39%. We note also that from 2017, oil price is up by 38%. Thus it should come as no surprise that that the low and narrow 2% to 4% target of the BSP was breached due to supply side factors which cannot be addressed by a rate hike.
Our Partner Broker’s Recommendation
Overall, we believe that a potential rate hike by the BSP in its next meeting this August will be a move to prevent capital flight (support the peso) and temper second-round effects. Also, the equities market will likely remain weak due to investor concern on the country’s rising inflation.
We note that companies in the Consumer sector with price-sensitive businesses are PGOLD, URC, LTG, CNPF, and EMP.
With another rate hike likely on the board, we remain positive on the Financial sector, with the three big banks (MBT, BDO, BPI) as our top picks.
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