Philippines inflation in February
Surpassing the 2-4% medium-term target
Philippines central bank defies tightening
The recent spike in Philippines’ consumer price inflation (CPI) above the central bank's 2-4% target has put monetary policy under the spotlight ahead of the March 22 policy meeting.
Inflation jumped to 4% year-on-year in January and further to 4.5% in February from 3.3% in 2017. The impact of tax reforms, rising food and utility prices are the main reasons which we expect to continue in the coming months.
However, Bangko Sentral ng Pilipinas's (BSP) policymakers have flagged their intention of not rushing into tightening to curb inflation. They argue that inflation would return to the target zone within the next 12 months and given the 12-18 months of policy lag, any tightening now would be ineffective anyway.
ING revises rate hike forecast
ING's economist for the Philippines, Joey Cuyegkeng expects inflation to peak within the next three to six month and expects no rate hike next week. He has also revised his forecast to no change from two 25bp rate hikes this year.
The stable monetary policy and widening trade and current account deficits will keep the Philippine Peso Asia’s underperforming currency this year.
Expect no change in Indonesia or Taiwan
The other two Asian central banks to meet next week are Bank Indonesia (BI) and Taiwan’s Central Bank of China (CBC), and there is a unanimous consensus that there will be no policy change by either. We expect both central banks to maintain the current policy settings throughout 2018.
Running little over 3% inflation has faded to be a policy concern in Indonesia. The expectations are that it remains well-anchored within BI’s 2.5-4.5% medium-term target. Growth is a bigger concern in Taiwan and weakening exports will put it above inflation as the policy goal this year. Taiwan data on export orders and industrial production will capture more attention next week.
A slew of inflation releases
February CPI inflation releases in Hong Kong, Malaysia and Singapore will be closely watched, and Malaysia and Singapore data will be of particular interest.
Our forecast of a further dip in Malaysian inflation below 2% means no pressure on the central bank to change policy anytime soon.
In Singapore, seasonally high food prices in the Lunar New Year month will pressure inflation up from zero percent in January, though these effects are transitory. We aren’t so confident about our forecast of the Monetary Authority of Singapore (MAS) moving to tightening in April.