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February CPI: Rebasing masks inflation surge

Based on BDO Macroeconomics Research, CPI inflation accelerated to 3.9% yoy in February 2018, from 3.4% in January, and the fastest since September 2014.

BDO Macroeconomics Research

Feb CPI: Rebasing masks inflation surge

  • CPI inflation accelerated to 3.9% yoy in February 2018, from 3.4% in January, and the fastest since September 2014. It is also slightly above our upwardly revised 3.8% yoy forecast for Q1 2018. Inflation was again led by food and nonalcoholic beverages, alcohol and tobacco, as well as transport, which rose by 4.8%, 16.9%, and 5.8% yoy respectively.
  • However, based on the prior composition of the CPI, inflation in February accelerated to 4.5% yoy, while core inflation picked up to 4.4%. The CPI basket is revised every six years in order to reflect changing consumer spending patterns. The BSP has previously stated that the 2-4% inflation target will be maintained amid the rebasing.
  • Second-round effects of higher food and energy prices, in our view, should drive inflation higher in coming months. Given the inflation outlook for the year, we now expect 75bps in cumulative rate hikes this year (from 50bps in our year-ahead outlook report), with the first 25bps delivered in March.
  • Nonetheless, we think inflation is unlikely to stay elevated in 2019, and our reasons are twofold. First, crude oil is unlikely to equilibrate much higher due to US shale output, which has again become economically viable. Second, base effects are likely to temper year-on-year price increases, whether tax reform-related or otherwise.

Full report here

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