August inflation slows to 3.3% y/y

The Philippine Statistics Authority (PSA) [link] revealed that our August inflation reading slowed to 3.3% in August, down from 4.4% in July. The Consumer Price Index (CPI) was 126.60 for August, which was a 0.08% increase relative to July ‘s 126.50 reading. The Bankgo Sentral ng Pilipinas (BSP) said that this inflation reading was “within the BSP’s forecast range of 3.2 – 4.0 percent for the month”, and added that our year-to-date average inflation is now 3.6% which is also “within the Government’s target range.” On the hot topic of rice price inflation, the BSP said, “Rice inflation decelerated markedly on the back of continued import arrivals levied with lower tariffs.” This assertion was disputed by Abacus Securities’s Head of Research, Nicky Franco [link], who posted a chart plotting Rice Price CPI and Inflation to show that the rice CPI component is basically flat (117.5 in August vs 118.1 in July) and only appears to be falling due to the drop in year-on-year inflation, which is just a high base effect.

MB bottom-line:  The fight over the price of rice is important. The rice CPI peak was back in April 2024 when it registered 118.6, so our August rice CPI of 117.5 is only 0.9% lower. I’m not living in a world where I’m trying to make perfect the enemy of the good, but the year-on-year comparisons just don’t tell the story that I see unfolding on the ground with the people in my life who depend on rice to feed their families. I was happy to see the inflation reading surprise marginally to the downside relative to analyst estimates. I think this will help give the Government and the BSP some cover to continue dropping rates. But I hope that as we go forward through this process of lowering rates we pay closer attention to the rice CPI price and less to the statistical artifacts that can come from comparing present-day data to that which was measured during periods of crisis. Remember when we were getting bizarre readings coming out of COVID where companies were posting 3,000% increases in year-on-year quarterly profitability? That’s an extreme example, but it’s illustrative of how year-on-year comparisons can obscure the progress of the improvement in those situations. 

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