Philippine food price pressures to materialize in October

CPI numbers are scheduled to be out tomorrow. Food price pressures should start to materialize in October following a strong typhoon in late September. An estimated 760,000 tons (7.7% of 2H projected harvest) of unhusked rice were damaged. Despite the crop destruction, authorities have stated that there is no need to import more rice for the rest of the year.

However, that cannot be said for 2012 where around 500,000 tons of imports are required and ongoing flood devastation in Thailand is likely to push up international rice prices. Accordingly we expect a higher-than-trend pickup in headline inflation in the coming months, averaging 0.4% (MoM sa) from October to March, compared to 0.2% in the six months ending September.

For October, inflation is projected to push up to 5.2% YoY before ending the year at 4.4%. For the whole of 2011, inflation is expected to average 4.9% before cooling off to 4.7% in 2012. The acceleration in sequential inflation will not be of immediate concern to the central bank (BSP) especially in light of persistent global headwinds. We expect BSP to maintain the overnight borrowing rate at 4.50% through to 3Q12.