CPI up for 4th straight month to 3.9% (lower than expected)

The Philippine Statistics Authority (PSA) [link] reported that the consumer price index (CPI) data for May revealed that headline inflation for that month was up 3.9% y/y (as compared to the CPI level for May 2023). This is the fourth straight month where inflation has quickened on a year-on-year basis, but the 3.9% inflation figure was actually lower than what economics expected (median estimate was 4.0%) and still within the BSP’s target inflation range (2.0% to 4.0%). The average inflation year-to-date is 3.5%, which is what the BSP expects we will average through all of FY24. The BSP’s Governor, Eli Remolona, said that the Monetary Board “could go first” in cutting interest rates ahead of the US Federal Reserve, and said that the first cut could come as early as August.

MB bottom-line: It will be interesting to see what the BSP does. While they’ve talked a lot about letting the PHP/USD exchange rate find its natural level without intervention from the BSP, the rate hit ?58.80/$ yesterday, and any interest rate differential between the BSP and the Fed could make that rate even worse. Mr. Remolona has said that he’s no longer interested in protecting psychological levels, but to butcher a Mike Tyson quote with some finance speak: Everyone has a plan until the peso trades with a 60-handle. Canada was the first of the G7 countries to cut its interest rates, with the Bank of Canada cutting its key rate for the first time since 2020. The Canadian Dollar has seen its value decline amid speculation that the Bank of Canada could move ahead of the Fed in cutting rates. 

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