Here are signs that Philippines' inflation may accelerate soon

July inflation pegged to hit 2.8%.

According to DBS, July inflation numbers are scheduled for tomorrow and a headline print of 2.8% YoY is expected, unchanged from the preceding month.

However, DBS notes early signs show that Philippines' inflation may accelerate over the next few quarters.

Here's more:

Price pressures have been low over the past six months as commodity prices stayed depressed amid lackluster global economic growth. These conditions are likely to persist for the coming few months, implying that price pressures from the external front are likely to remain muted.

On the domestic front, robust GDP growth over the past few quarters has not translated into demand-pull inflation. Stable commodity and food prices have a large role to play in keeping headline inflation low.

Beyond the immediate few quarters, however, there are some early signs that inflation may accelerate. Notably, broad money (M3) growth reached 20.3% YoY, up from 10.6% YoY in December.

Some of this increase in money supply can be explained by the switching offunds out of special deposit accounts(due to more stringent directive imposed by the central bank) into other financial instruments including deposits.

Flushing the financial system with liquidity creates an environment conducive for credit growth which is positive for economic growth but also presentsthe specter of rising inflation.

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