The Philippine Statistics Authority (PSA) reported yesterday that headline inflation for the month of July printed at +4.4% year-on-year (YoY), surpassing the +4.1% consensus estimate and our own forecast of +4.2%. <\/p>\n\n\n\n
Despite the shocking print, it was a widely-expected breach of the BSP\u2019s target inflation range, as the central bank has already telegraphed that the July number will likely make a temporary return above 4%. Core inflation figures, on the other hand, continued to decline and settled at +2.9% from +3.1% in June.<\/p>\n\n\n\n
Rice inflation, which was a major driver of inflation earlier this year, eased by 0.3% month-on-month (MoM). On a year-on-year (YoY) basis, rice inflation cooled to +20.9% from +22.5% in June. We expect this number to go lower in the succeeding months following the official end of El Ni\u00f1o, coupled with the lowering of rice import tariffs and the expected lifting of India\u2019s export ban on non-basmati rice. <\/p>\n\n\n\n
However, cooling rice prices were somewhat offset by higher prices of vegetables and fruits following the crop damage and logistical disruptions from flooding brought by he southwest monsoon enhanced by Typhoon Carina in late July. Overall, food inflation remained elevated at +6.4% YoY, up slightly from +6.1% YoY in June.<\/p>\n\n\n\n
HWEGO (Housing, Water, Electricity, Gas and Other Fuels) was the other major contributor to inflation in July, logging an increase of 2.3% YoY from +0.1% the previous month. Electricity showed the biggest jump from -5.7% in June to +0.7% in July, after power distribution companies started collecting the portion of the generation charge which was previously ordered by the ERC to be split into tranches to prevent bill shock. There will be three more tranches of this additional generation charge, so we expect HWEGO to remain elevated until October.<\/p>\n\n\n\n
Our View: <\/strong>We see the July inflation print as a one-time blip, caused by a lower base and the one-time disruptive effect of the typhoon. We fully expect inflation to ease back within the 2-4% range next month when the base starts to move higher. Given the one-time aspect, and the fact that YTD average inflation remains within range at 3.7%, this latest data point should not play a part in the BSP Monetary Board meeting next week. <\/p>\n\n\n\n However, BSP Governor Eli Remolona said to reporters following the inflation report that the BSP is now “a little less likely” to cut next week. Despite this, we remain optimistic that the BSP will kick off its easing cycle with a 25bps (0.25%) cut at the August meeting.<\/p>\n\n\n\n