Philippines' core inflation hits 17-month high

By Enrico Dela Cruz, Reuters

Posted at Sep 05 2014 11:18 AM | Updated as of Sep 05 2014 07:18 PM

Analysts see BSP raising policy rate or SDA rate next week

MANILA - The Philippines' core inflation quickened to a 17-month high in August, data showed on Tuesday, reinforcing views the central bank is likely to tighten policy rates again at next week's meeting to rein in growing inflation pressures.

Core inflation, which takes out volatile items in the consumer basket to measure the underlying trend in prices, climbed to 3.4 percent, the highest since March 2013 when the rate hit 3.8 percent.

Commenting on the data, Bangko Sentral ng Pilipinas Governor Amando Tetangco said the rise in core prices and other developments in the domestic and external fronts will influence policy settings when the central bank meets on Sept. 11.

The headline consumer price index rose 4.9 percent in August from a year earlier, matching the rate in July, and a shade lower than the median 5 percent rise forecast by a Reuters poll.

With the latest data, some economists believe the central bank will continue its tightening cycle, and raise the policy rate when it meets next week.

"We still think another 25 basis point hike in the overnight rate is possible given that food inflation is holding at 8.3 percent and core inflation is highest in 17 months," said Patrick Ella, economist at Security Bank Corp.

In July, the central bank raised the benchmark overnight borrowing rate by 25 basis points to 3.75 percent, the first hike in three years, to stay on top of inflation pressures as the economy continued to gather speed.

Friday's data brought the average headline inflation in the eight months to August to 4.4 percent, approaching the top end of the central bank's 3-5 percent inflation target for the year.

The central bank has a 2-4 percent inflation goal in 2015.

Some in the market forecast the central bank will raise only the rate on its short-term special deposit account (SDA) facility at next week's meeting, a tool that is effective in siphoning off excess liquidity that could put more pressure on inflation.

"I am looking for a hike in the SDA rates given that it has been the effective monetary policy instrument since almost a year now," said Vaninder Singh, economist at Royal Bank of Scotland, adding policymakers need to adjust the SDA rate to make it attractive after the increase in banks' reserve requirements earlier this year.

It last raised the SDA rate by 25 basis points in June to 2.25 percent.

Data last week showed the consumption-driven economy grew at a faster-than-expected 6.4 percent in the June quarter, the quickest pace in over a year.