Inflation surges to 6.

4% in August 2018, exceeds estimates

MANILA, Philippines (3rd UPDATE) – Inflation or the increase in the prices of goods climbed
to another 9-year high, hitting 6.4% in August.

The latest figure, announced by the Philippine Statistics Authority (PSA) on Wednesday,
September 5, was higher than July's 5.7%.

This is also the fastest since March 2009, when inflation hit 6.6% during the Arroyo
administration.

Annual increases were observed in food and non-alcoholic beverages (8.5%), alcoholic
beverages and tobacco (21.6%), furnishing and household equipment (3.5%), health (4%),
restaurants and miscellaneous goods and services (4%), and recreation and culture (2.4%).

The annual rate of the food index further climbed by 8.2%.

The National Capital Region (NCR) felt higher inflation at 7%. The PSA attributed the uptrend
to higher prices of food, household expenses, transportation, recreational activities, and
restaurant and miscellaneous goods and services.

Annual inflation in areas outside NCR also jumped to 6.2%, higher than the recorded 5.5%
year-on-year.

Bangko Sentral ng Pilipinas (BSP) Governor Nestor Espenilla Jr attributed the spikes to the
"unfortunate confluence of cost-push factors" and the "elevated oil prices" which drove
transport and power prices higher.

"Much of it has to do with food supply shocks, rice in particular. These warrant more decisive
non-monetary measures to fully address," Espenilla said.

He added that the BSP will analyze the latest data for their next policy meeting on September
27.

Beyond the target range

The Department of Finance and the BSP had forecast August inflation to be only at 5.9%, while
economists' median estimate was at 6%.

With the current pace, the government is likely to miss the target of keeping 2018's average
inflation within 2% to 4%.
Year-to-date inflation is already at 4.8%.

Espenilla previously said they expect inflation to peak between August and September of this
year before tapering off in 2019.

The central bank raised interest rates by 50 basis points (bps) last August, bringing the
overnight reverse repurchase (RRP) rate to 4%, to help temper market expectations. 

Economists said the elevated prices of goods pulled down the economy's growth. The
country's gross domestic product (GDP) grew by only 6% in the 2nd quarter of 2018, missing
all market estimates. – Rappler.com

Pernia denies manipulating August 2018 inflation data

There are rumors that the August 2018 inflation rate was at 6.6% and not 6.4%

MANILA, Philippines – National Economic and Development Authority (NEDA) Secretary

Ernesto Pernia dismissed speculations that the government manipulated the latest inflation
rate and made it lower than it actually is.

August inflation clocked in at 6.4%, exceeding most estimates.

But rumors quickly spread across banks and the trading floor that the figure was actually higher,
at 6.6%, after the Philippine Statistics Authority (PSA) failed to release the figures at exactly 9
am on September 5.

Pernia, however, admitted that there was a miscalculation, which had to be corrected and led to
the delay.

The  Inquirer reported that the PSA miscalculated prices under the education commodity group.
The report states that the agency did not take into account the free tuition scheme recently
implemented in state colleges and universities.

"It's normal that PSA's first data releases are preliminary, i.e., subject to revisions. This applies
to national income accounts such as GDP (gross domestic product) etc," Pernia said in a text
message to reporters.

"Recall that the 2016 GDP growth was first reported at 6.8%, later revised much later to 6.9%.
Similarly, 2018 Q1 GDP growth was 6.6%, later changed to 6.4%. In the case of 2018 August
inflation, the revision was also an appropriate and necessary corrigendum (Latin for 'to be
corrected') as the error was detected early," he added.
The socioeconomic planning chief went on to say that there "was no intention of hiding" the
inflation figures.

The PSA apologized for the delay, but claimed that it was due to "technical difficulties" that
bogged down its website. The PSA never mentioned the revision as the cause of the delay. –
Rappler.com

Bangko Sentral hikes interest rates again over high inflation

MANILA, Philippines (3rd UPDATE) – The Bangko Sentral ng Pilipinas (BSP) raised interest
rates by 50 basis points (bps), meeting market expectations.

This brings the overnight reverse repurchase (RRP) rate to 4%.

Interest rates on the overnight lending and deposit facilities were also raised accordingly.

"The Monetary Board noted that latest baseline forecasts have shifted higher over the policy
horizon, indicating some risk of inflation exceeding the target in 2019," BSP Governor Nestor
Espenilla Jr said in a press briefing on Thursday, August 9.

Inflation jumped to 5.7% in July, the highest in 5 years under base year 2012.

Espenilla said inflation remains likely to stay high for the rest of 2018, but is still expected to
fall within the 2% to 4% target in 2019.

The decision came on the same day the Philippine Statistics Authority announced that gross
domestic product slowed down to 6% in the 2nd quarter of 2018.

Despite the growth missing market expectations, Espenilla said the "economy can accommodate
further tightening of monetary policy settings."

The Monetary Board already raised policy rates twice back in May and June to 50 bps, as
inflation expectations remained high.

How it works: Interest rate changes are at the heart of the BSP's conduct of monetary policy.

Banks are restricted from releasing all of their money to the public and are required to keep a
certain percentage of their total funds. This is referred to as the reserve requirement ratio
(RRR). The BSP is implementing an 18% RRR for banks.

To follow the BSP's guideline, banks keep their funds in check and at times need to borrow
from other banks when they fall below the RRR. Borrowing from other banks means they need
to pay interest, referred to as the overnight reverse repurchase (RRP) rate.
Higher interest would discourage banks from borrowing from other banks. This also means that
banks would be more careful to shell out funds and give out loans to consumers.

How it affects inflation: Raising the interest rate creates a ripple effect across the economy. It
generally means higher borrowing costs for consumers and would lead to people spending less.

Less spending in the economy slows down the demand for goods. Low consumer spending
would then encourage businesses to lower their prices and cause inflation to fall or at least
stabilize.

Businesses would also cut back on spending because of higher interest rates.

How it affects sectors: Since consumers reduce spending amid high interest rates, businesses'
earnings fall. Companies listed under the Philippine Stock Exchange would then report lower
earnings and their stock prices would drop.

On the other hand, when interest rates fall, consumers and businesses increase spending and this
results in higher stock prices.

In summary, interest rates influence stocks, consumer and business spending, and inflation.
However, changes in monetary policy usually operate with a lag of around 10 to 12 months, so
effects may not be felt immediately. – Rappler.comFINANCE AND INDUSTRIES