The September 2023 Consumer Price Index (CPI) or inflation rose by 6.1% on a year-over-year (YoY) basis and by 1.1% when compared to the preceding month of August. Year-to-date (YTD) average inflation rate is now at 6.6%. <\/p>\n\n\n\n
The principal driver behind this uptick in inflation was the surge in food prices. Specifically, prices for rice and cereals exhibited significant YoY increases of 17% and an 8% uptick compared to the previous month. Additionally, alcoholic beverages and tobacco experienced a 10% YoY increase, though the monthly change remained relatively modest at 0.3% compared to August levels. <\/p>\n\n\n\n
The substantial weight of rice within the CPI, accounting for 8.9%, elucidates its pivotal role in driving the overall inflationary upswing observed between August and September. Given the persistence of elevated inflation over two consecutive months, the Bangko Sentral ng Pilipinas (BSP) has responded by revising its inflation forecast upward to 5.8%, surpassing the previous estimate of 5.6%.<\/p>\n\n\n\n
Our View: <\/strong>The market tumbled last week as the September print was much higher than the consensus estimate of 5.3%. Moreover, it is likely to undermine consumer confidence and, consequently, dampen spending. With food being an essential necessity, the rise in food prices will necessitate a larger portion of consumers’ income to be allocated to meet this basic need, leaving less room for discretionary spending.<\/p>\n\n\n\n The significant inflation spike may justify a more assertive response from the BSP. Although inflation may be primarily driven by supply-side factors, its current level surpasses a threshold that the BSP cannot overlook. Consequently, the BSP may need to consider raising interest rates, even though this action carries the risk of reducing overall demand in the economy. <\/p>\n\n\n\n The acceleration of inflation is likely to create unease among businesses and investors. This uncertainty regarding the future purchasing power of money has the potential to influence investment decisions and capital allocation, introducing additional complexities to economic planning. <\/p>\n\n\n\n Our projection for 2023 and 2024 headline inflation is now anticipated to be 6.3% and 5.8% respectively, remaining above the inflation target range set by the (BSP) of 2% and 4%.<\/p>\n\n\n\n