Here's why Philippines should not be too happy yet

Inflation dipping to 2.8% might just be temporary.

According to Nomura, headline inflation eased more than expected to 2.8% y-o-y in November, from 3.1% in October (Consensus: 3.1%; Nomura: 3.3%).

Here's more from Nomura:

This was driven by lower non-core components of the CPI basket, e.g. food and energy, which rose a slower 0.8% y-o-y from 1.4% in October. Core inflation also eased, but by much less, to 3.4% from 3.6%.

Core inflation has for some time now been running above CPI inflation, in part reflecting the strength in domestic demand. However, disinflationary forces from non-core items have been powerful, keeping headline inflation at low levels for most of 2012, hence helping inflation expectations remain in check.

For next year, we forecast CPI inflation to rise to the upper half of the official 3-5% target at 4.6%. GDP growth is running above potential (see Asia Insights: Philippines: GDP growth soars to 7.1% in Q3, 28 November, 2012) and we expect supply-side factors to turn more unfavourable given the typhoon in December.

We thus reiterate our view that the policy rate will be kept on hold until a hike in Q3 2013.