Philippine inflation to peak in Q3 2011

Headline inflation likely edged up in August CPI inflation likely edged up to 4.7% (2000=100) in August after a brief pause in July. Prices of rice and vegetables continued to rise, and the increase in power tariffs by the country’s largest electricity distributor helped to push up headline inflation. However, the stabilisation of commodity prices, namely for oil, is expected to have mitigated inflationary pressure.

We expect headline CPI inflation to peak in Q3 as slower-than-expected economic growth in Q2 (on the back of the global economic soft patch) weighs on the near-term inflation outlook. We now expect Bangko Sentral ng Pilipinas (BSP) to hold off on tightening until Q1-2012 (previously Q4-2011), when either the global economy stabilises or possibly, QE3 pushes up the inflation outlook.