Inflation risks broaden as peso weakness compounds supply shocks

From AB Capital's The Opening Bell: Three Moves

Event

Economists expect October inflation to accelerate to 7.6% from 7.2% in September, potentially the highest since March 2023 and the eighth consecutive month above the BSP's 4% ceiling. Higher electricity rates, transport fares, food prices and peso depreciation underpin the forecast, with the official release due November 5.

View

Higher transport fares, electricity charges and peso-linked import costs are raising recurring household expenses, even as some food prices ease MoM. This strengthens the case for persistent underlying inflation.

Catalyst

Continued oil volatility and El Niño could intensify second-round pressures, while easing commodity prices and a firmer peso would temper inflation. The December 17 BSP meeting is the next policy catalyst.

Action

With the BSP already raising rates by 125bp to 5.5%, we think another hike is increasingly plausible if the October print confirms broader price pressures. We remain cautious on rate-sensitive equities and importers, favoring balance sheet resilience, pricing power and cash flow visibility until inflation expectations and FX pressures stabilize.

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