GERMAN financial company Deutsche Bank said the Bangko Sentral ng Pilipinas’ (BSP) larger-than-expected October rate hike would “likely be sufficient for now,” as the mixed inflation signals warrant giving previous monetary policy adjustments time to take effect.
Deutsche Bank economist Junjie Huang said further monetary tightening in December or through an off-cycle move could weaken already-soft domestic demand before the impact of earlier rate increases becomes evident.
Rising energy and transport costs pushed Philippine inflation to 7.8 percent in October although price pressures became less widespread, Huang said in a research note released on Nov. 5.
The bank said headline inflation accelerated by 0.6 percentage point from September’s 7.2 percent, exceeding both its forecast and market consensus of 7.6 percent.
The increase was largely driven by higher energy-related expenses in utilities and transport, which more than offset a slight decline in food prices.
Huang said the acceleration did not indicate a generalized increase in prices, with its inflation diffusion index falling to 75 in October from 85 in September.
The number of consumer price index items recording inflation above their historical trend also declined to 70 from 72 over the same period.
“October’s increase does not signal a generalized acceleration in inflation,” Huang said, noting that the narrowing breadth of price increases contrasted with sustained positive momentum in other underlying inflation measures.
Despite the latest increase, Deutsche Bank expects inflation to remain below 8 percent in November and December, averaging 7.2 percent during the final two months of the year.
The bank raised its full-year inflation forecast to 5.9 percent from its previous estimate of 5.7 percent.
It attributed the expected moderation partly to a lower global energy and policy-risk premium following the United States midterm elections, although food supply pressures remain an upside risk.
Huang said companies’ ability to implement further price increases, particularly for discretionary goods and services, could be constrained by weaker pricing power as real disposable incomes erode and consumer sentiment remains subdued.
