The country’s August inflation rate came in at 3.3% year-on-year (y-y), lower than consensus expectation of 3.6% and slower than July\u2019s 4.4%. This puts inflation back within the BSP\u2019s target range of 2%-4%. Core inflation was also slower at 2.6% y-y vs. 2.9% in July.<\/p>\n\n\n\n
The key drivers to the slower August inflation are: (1) Food inflation (35% of CPI) which slowed down to 4.2% y-y from 6.7% y-y in July; and (2) Transport prices which was lower at -0.2% y-y. The slower food inflation can be traced mainly to lower rice prices while the drop in transport price was due to fuel price rollbacks.<\/p>\n\n\n\n
As per our earlier note, we expect inflation to decelerate further in the coming months due to lower rice prices (impact of tariff cut) and normalization of power rates (fading impact of WESM adjustments. <\/p>\n\n\n\n
Also, we expect rice prices (9% of CPI) to decline further due to increased supply of cheaper imported rice (due to tariff cut) in the ensuing months. Add to that the impact of positive base effects with rice prices starting to soar in Aug 2023.<\/p>\n\n\n\n
We expect headline inflation to average 3.1% this year and 2.6% next year. We also forecast one more 25bps (0.25%) rate cut from the BSP before end-2024.<\/p>\n\n\n\n
We thus reiterate our overweight (or buy) rating on Banks and Property. <\/strong>We also suggest revisiting the Consumer sector given seasonal improvement in consumption trends heading into the holiday celebrations. We highlight that this year is coinciding with easing inflation and lower rates, thus, improving consumer confidence should give additional boost to the usual strong holiday spending.<\/p>\n\n\n\n