The country’s headline inflation in July accelerated to 4.4% vs. 3.7% in June, higher than market expectations of 4.1%. In turn, core inflation was actually slower at 2.9% while seasonally adjusted CPI was flat month-on-month. The year-to-July average inflation is now at 3.7%.<\/p>\n\n\n\n
Despite the mixed tone from BSP Governor Remolona in reaction to the higher July CPI, he did not rule out a potential rate cut. He alluded that inflation expectations are well anchored and risks to their inflation outlook has shifted to the downside. In addition, Finance Secretary Recto (also a Monetary Board Member) considered the July CPI rise as likely a one-time uptick and reiterated that inflation is expected to fall within goal for the rest of 2024. <\/p>\n\n\n\n
We adjusted our inflation forecast to 3.1% (from 2.8%) for 2024 and to 2.6% (from 2.2%) for 2025 to factor in higher food prices (except rice) and transport cost. Nonetheless, we still expect inflation to slow down in the coming months driven by lower rice prices and normalization of electricity rates.<\/p>\n\n\n\n
We keep our 6.3% growth forecast for household spending this year (vs. 5.5% in 2023) given softer commodity prices, higher wages and easing inflation. However, spending will be back-ended and we expect consumers to gravitate towards value.<\/p>\n\n\n\n
Our View: <\/strong>We hold on to the view that the BSP is likely to cut sooner given the transient nature of inflationary pressures (i.e., power rates to normalize and favorable base effects for rice). The weaker dollar\/stronger peso also supports the BSP in going ahead with their easing cycle. <\/p>\n\n\n\n We therefore reiterate our positive outlook on the Philippine market and view the recent selloff as a chance to revisit potential winner sectors, specifically the Property and Banking sectors which typically have outperformed during the past easing cycles.<\/strong><\/p>\n\n\n\n