February 5, 2020 / 2:11 AM / 15 days ago

Philippine January inflation highest in eight months, but rate cut on cards

MANILA (Reuters) - Philippine January inflation picked up more than expected to an eight-month peak, but the outcome is still within the central bank’s comfort range and supports views it will likely cut interest rates when it meets on Thursday.

A vendor rests in her market stand that sells rice in Quezon City, Metro Manila in Philippines, September 5, 2018. REUTERS/Eloisa Lopez

The consumer price index (CPI) in January rose 2.9% from a year earlier, the statistics agency said on Wednesday, the highest since May 2019, due to increases in the cost of food, clothing, transport and utilities.

A Reuters poll had forecast the CPI in January would rise 2.8% from a year earlier, within the central bank’s 2.5%-3.3% forecast range for the month, and more than the previous month’s 2.5% increase.

“This is consistent with the BSP’s prevailing assessment that inflation is expected to gradually approach the midpoint of the target range in 2020 and 2021,” Bangko Sentral ng Pilipinas Governor Benjamin Diokno said in a tweet.

The annual core inflation rate was 3.3% in January compared with December’s 3.1%.

The data was released a day before the central bank meets, where it is widely expected to cut its policy rate by 25 basis points to 3.75% to buttress the economy against the negative impact of the spreading virus outbreak.

“Inflation pop in January (was) induced by transitory factors and we expect the central bank to carry out its rate cut on Thursday despite the slightly higher inflation print,” ING Economist Nicholas Mapa said.

The central bank has a 2%-4% inflation target for this year.

It kept rates on hold at its meetings in November and December as the outlook improved on the back of higher government spending and strong domestic demand.

Governor Diokno said last week the central bank was still eyeing at least a 50 basis point cut in policy rates this year to further unwind the total 175 basis points of rate hikes in 2018 to control red-hot inflation.

The government has set a 6.5%-7.5% growth target for the year, but disruption caused by the coronavirus outbreak which began in China and is spreading to other countries poses risks to Manila’s growth outlook.

Editing by Jacqueline Wong

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