Philippine inflation to hit 3.5%

This will be the highest reading in seven months.

According to DBS, inflation will tick to 3.5% YoY in August and this will be the highest reading in seven months. However, we are not unduly concerned. Food price pressures arising from the recent flood will factor into the headline number, but this should prove transitory.

Here's more from DBS:

The overall trend of inflation should remain benign and inflation should still stay comfortably below 4% for the rest of this year, despite the recovery in oil prices in the last few weeks. The low inflation thus far this year is even more impressive if we consider the rapid pace of GDP growth (6.1% YoY) in 1H. The central bank (BSP) has already cut the overnight borrowing rate by 75bps and we think that another 25bps rate cut will come by the end of this year to further bolster the economy.

Exports have held up relatively well due to a surge in non-electronics manufactures. However, it is not clear that this trend can be sustained and we suspect that exports growth will deteriorate.