2 reasons why Philippines' inflation spike may halt monetary easing

The 3.8% inflation is almost entirely caused by food price hike.

According to DBS, the spike in inflation to 3.8% YoY in August may give the central bank (BSP) reason to pause in monetary easing today. BSP has cut the overnight borrowing rate (OBR) by 75bps this year as a form of insurance against a slowdown in external demand and to guard against excessive peso strength.

Here's more from DBS:

That also came when the inflation rates were still very low (below 3.5%) and will likely be on the low end of BSP’s 3-5% target. The outlook has changed slightly but we still think another 25bps rate cut will come by the end of this year.

Firstly, the rise in inflation is almost entirely caused by an increase in food prices due to unfavorable weather conditions and higher energy prices. Comparatively, core inflation was stable. Secondly, exports have held up surprisingly well. Despite a 25.6% YoY drop in electronics exports in July, non-electronics manufactures were able to take up the slack and pull headline export growth to 7.8%. As such, there is no immediate need to further lower the OBR, until there is a further deterioration in export numbers.