Philippine inflation jumped in September, snapping four months of deceleration and keeping the Bangko Sentral ng Pilipinas on a tightening path that now stands apart in the region. Headline inflation rose to 7.2 percent, the fastest in three and a half years, from 6.1 percent in August, above a 6.7 percent poll median, while core inflation rose to 4.7 percent from 4.1 percent. The year to date average is 5.4 percent, and inflation has held above the BSP’s 3 percent target for a seventh straight month.
The drivers are supply side and compounding: fuel, food, housing and utility prices, a Metro Manila wage increase, and a severe El Nino that threatens food supply into the fourth quarter, when the BSP itself expects inflation to peak. Governor Eli Remolona said on Friday that the bank is more worried than before about inflation expectations, while noting reassurance from a survey showing inflation expected at 3.3 percent in three years, against an external forecasters’ path that still runs at 5 to 6 percent.
The Monetary Board has already hiked three straight times since April, by a cumulative 75 basis points, taking the policy rate to 5.00 percent in August in what it called a preemptive move. Analysts at BMI, S&P Global Market Intelligence and the Bank of the Philippine Islands all expect a further 25 basis point hike on October 22, to 5.25 percent, and BPI sees another in December taking the rate to 5.5 percent by year end.
That path carries a growth cost the BSP is openly accepting. Pantheon Macroeconomics notes activity is sluggish even as inflation stays stubborn, and the October decision will test how far a central bank will tighten into a weather and energy shock that monetary policy cannot fix, on the argument that expectations, not the shock itself, are the target.