Inflation continued to gain momentum in the month of September, as prices rose by 6.1%, with the month-on-month (MoM) increase also slightly picking up the pace at 1.14%. All in all, this brings average headline inflation for the year at 6.6%, still way above the BSP\u2019s target of 2 to 4%. <\/p>\n\n\n\n
The primary culprit for the upward trajectory of the CPI lay mainly on the shoulders of the Food component, as the cost of rice notably spiked by 17.9%, more than double the 8.7% that we saw in August. Overall contribution of Food to total inflation stood at 3.7ppts.<\/p>\n\n\n\n
Aside from this, Restaurants and Accommodation Services as well as Household Utilities also chipped in 0.7ppts and 0.5ppts respectively, likely owing to price increased by the former and rising oil-induced power costs by the latter.<\/p>\n\n\n\n
While it is still too early to give a definitive view on where the next inflation reading could be headed, we nevertheless compiled some data to chart a general direction and some early expectations. <\/p>\n\n\n\n
Based on figures provided by the Department of Agriculture (DA), we saw that despite the recent price cap on rice, the cost of the commodity is still up by an average of 15.2% YoY as of Oct. 05. Fish and Meat prices were likewise also higher by 7.5% and 1.9% respectively. <\/p>\n\n\n\n
Based on these early numbers alone, it would seem that food inflation could still possibly be a major contributor to the next month\u2019s reading. While we expect rice prices to continue to gradually subside, owing to the impact of the local bumper harvest in the coming months, we note that this could be partially offset by the P1 jeepney fare hike which will take effect on Oct.08. <\/p>\n\n\n\n
Additionally, the fare hike could also induce some added stickiness to core inflation. Given that prices still remain steep relative to last year, we note that although MoM easing in food prices will likely continue to take place, double digit growth YoY in rice costs is still not out of the picture, albeit not to the same extent that we saw in September.<\/p>\n\n\n\n
Although the optics from recent headline inflation figures were not good, we note that an off-cycle rate hike is still not a done deal given that core inflation did continue to maintain a downward trajectory. Having said that, we note that the upcoming jeepney fare hike does add a new wrinkle to the equation. <\/p>\n\n\n\n
On the flip side, an interest rate hike in the November meeting now possesses a very strong possibility of happening. In a recent Reuters article, BSP Governor Remolona stated that the central bank was ready to resume tightening following the hot inflation numbers. <\/p>\n\n\n\n
As it stands, investors should likely expect at least one more rate hike as we approach the end of the year. The continued possibility of an off-cycle move will likely also be casting an overhang on the market for the next couple of weeks.<\/p>\n\n\n\n