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HSBC sees inflation easing to 5.7% as food and fuel prices drop

Hongkong and Shanghai Banking Corp. expects inflation rate in the Philippines to ease to 5.7 percent in December from 6 percent in November, mirroring the downtrend in food and fuel prices.

“We expect inflation to have peaked at 6.7 percent year-on-year and to continue its gradual decline in December to 5.7 percent,” the bank said in a latest report.

“The deceleration has largely been supply-side driven, reacting to recent declines in food and fuel prices,” it said.

The bank said core prices remained elevated on both a yearly and sequential basis which suggested building demand-side pressures on inflation. It said near-term inflation risks remained tilted to the upside, given a scheduled increase in excise taxes on Jan. 1, 2019. 

HSBC said the Bangko Sentral might increase by another 25 basis points the policy rate to 5 percent in the first quarter of 2019, “as additional excise taxes may add to inflationary pressures and higher inflation expectations.”

The Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, in its last meeting for the year on Dec. 13 decided to keep the policy interest rates steady at 4.75 percent after five successive hikes since May, taking into account the decelerating inflation rate.

The interest rates on the overnight lending and deposit facilities were also kept unchanged.

“There is a quite deceleration in inflation pressures between the Nov. 15 and Dec. 13 meetings,” BSP assistant governor Francisco Dakila said in a news briefing following the board meeting.

“The board noted that the latest inflation forecasts show a lower path over the policy horizon, with inflation settling within the target band of 2 to 4 percent for 2019 to 2020,” Dakila said.

He said recent headline inflation readings indicated signs of receding price pressures as constraints on food supply continued to ease with the implementation of various non-monetary measures.

The BSP also reduced the inflation forecast for 2018 to 5.2 percent from 5.3 percent, 3.18 percent from 3.5 percent for 2019, and 3.04 percent from 3.3 percent for 2020.

ING Bank Manila senior economist Nicholas Mapa said the BSP might opt to cut interest rates by the second quarter next year if inflation continued to decelerate in the coming months.

Topics: Hongkong and Shanghai Banking Corp. , HSBC , inflation rate , food and fuel prices
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