October inflation cools to 4.9%, below BSP and consensus estimates

The Philippine Statistics Authority (PSA) [link] said that the Consumer Price Index data for October showed that our October inflation rate was just 4.9% (relative to October 2022), which was below the BSP’s estimated range and below what most analysts had been predicting for the month. The CPI number for October (123.7) was actually lower month-on-month from the CPI number for September (123.9), meaning that it's possible for inflation to have already peaked in September. According to Enrico Villanueva, a Senior Lecturer of Economics at the University of the Philippines Los Baños Economics Department, it’s possible for the inflation rate to settle within the BSP’s target this year, “barring policy blunders, strong storms or oil price surges”. The main driver of the marginally lower CPI number was a slowing in the rate of price increases for many staple food items, like rice, vegetables, fish, bread, sugar, and meat.

MB bottom-line: A surprise to the downside is a welcome on, as we’ve endured enough surprises to the upside to last a lifetime during this inflationary cycle. What’s nice is that the downtick in inflation wasn’t just a product of a high-base effect; the CPI number actually decreased! That’s not the first time it’s happened, and based on what happened after the last downtrend, a decreasing CPI number is no guarantee that inflation is heading lower. But it is a great signal that things are at least moving in the right direction. Even more importantly, this result could influence the forward-looking inflation expectations of consumers and businesses, and potentially limit the spread of the second-order effects of inflation. This result also gives the BSP all the room in the world to not raise rates at its upcoming Monetary Board meeting next week.

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