Inflation cooled faster than expected
Headline CPI for November 2023 slid further to 4.1%, beating median forecasts of 4.4% and a significant decline from October’s 4.9%. This is the lowest inflation print since April 2022’s 4.9% and only slightly higher than March 2022’s 4.0%. The month-on-month (MoM) change in the headline CPI was a mild 0.16%. Core inflation also extended its 8-month decline to 4.7% from October’s 5.3%.
Food inflation continues to slow
Inflation in the heavily-weighted food and non- alcoholic beverage index slowed to 5.7% from last month’s 7.0%. This provided significant relief from the 9.7% spike in food prices in September following India’s rice export ban. Transport also printed a 0.8% annual decrease, from October’s 1.0% rise. Even the sticky inflation in the restaurants and accommodation services index has started to ease to 5.6% from 6.3% the previous month.
Disinflation trend is becoming more convincing
Inflation in all indices extended their decline from October, even in the discretionary segments where inflation has proven sticky in the past months. This has led us to believe that every single corner of the economy has now soaked up the effects of the BSP’s monetary tightening and disinflation is becoming more entrenched. This month’s print has come very close to the BSP’s inflation target range of 2-4%, although YTD inflation remains high at 6.2%.
Nonetheless, we expect inflation to ease further to sub-4 levels within the next few months and we should see the trailing twelve-month average enter the BSP’s target range by April next year.
Interest rates to remain high for not much longer
Considering the current BSP Governor’s slow-and-steady approach, it might take the Monetary Board a few more months to become convinced of the disinflation trend. However, we feel that a rate cut is becoming more and more likely by the end of the first half of 2024. A slower-than-expected Q4 GDP report might help the process along and push the rate cut schedule earlier in the second quarter.
As such, we would advise clients to cautiously start rotating into sectors that would benefit from rate cuts such as property and capital-intensive sectors like infrastructure and construction.
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