Food inflation drives headline inflation up to 5.3%<\/strong><\/p>\n\n\n\n Food inflation surged to 8.2% in August as rice inflation more than doubles to 8.7% from 4.2% the previous month. The transport commodity group, which includes fuel prices, reversed its disinflationary trend and printed at +0.2% in August after 3 consecutive months of decline. This caused headline inflation to overshoot the consensus estimate of 4.7% but fell within our estimate range of 5.2-5.4%. Month-on-month change in the consumer prices index (CPI) was 1.07%, the steepest gain since January 2023.<\/p>\n\n\n\n Core inflation printed lower at 6.1%<\/strong><\/p>\n\n\n\n Core inflation, which excludes volatile food and fuel prices, sustained its five-month downtrend and printed at 6.1%. Lower inflation in certain commodity groups like alcoholic beverages and tobacco (10.1% from 10.9% in July), housing, water, electricity, gas and other fuels (2.5% from 4.5% in July), restaurants and accommodation services (7.1% from 7.9% in July), and education (2.9% from 3.7% in July), contributed to much of the decline.<\/p>\n\n\n\n No BSP action expected<\/strong><\/p>\n\n\n\n Given that much of the inflation is caused by supply-side issues, we don\u2019t expect the BSP to react to the acceleration in inflation with an interest rate hike. The government has already taken steps to address the increase in rice prices, with the President imposing a price ceiling of P41\/kg on local regular milled rice and P45\/kg on local well-milled rice. The government has also pledged to extend financial assistance to rice retailers to offset any losses incurred as a result of the price caps, which would help ensure that supply does not get constricted. While this may prove unsustainable over longer time frames, it may just be enough to ensure availability of affordable rice until fresh supply from the Oct-Nov harvest season becomes available.<\/p>\n\n\n\n Implications for listed companies<\/strong><\/p>\n\n\n\n Continued increase in the cost of food would not bode well for those food manufacturers with price-sensitive markets such as MONDE. While noodles are commonly seen as a household staple, we note that volumes in Q2 cratered by 8.6% amidst the company\u2019s price increases, while market share dipped by 40bps. <\/p>\n\n\n\n We would instead advise investors to pivot towards CNPF as the company\u2019s portfolio of canned food has seen revenues grow at an expanding rate so far for the year, in contrast to much of what was seen in the consumer sector. OPEX has also trended downwards, which signifies a better capacity to protect market share given that inflationary impact does not have to be passed on to consumers. Investors should therefore wait for lower levels to scoop up the stock. <\/p>\n\n\n\n Meanwhile, higher prices should continue to fuel demand for credit cards as this gives consumers the chance to supplement their buying power. On this front, we would also recommend BPI (Target Price: P126.10) and UBP (Target Price: P84.92).<\/p>\n\n\n\n