Philippine inflation to inch up to 3.1%

Thanks to lower oil prices and well-behaved food prices that brought down healding inflation.

According to DBS, inflation has been benign and is likely to stay manageable in 2H. For the first half of this year, average monthly YoY inflation reached only 3%, hugging the lower band of BSP’s 3-5% target. Lower oil prices and well-behaved food prices have contributed to bringing down headline CPI. Loan growth has also been moderately strong, but not excessively so.

Here's more from DBS:

We expect inflation to reach 3.1% YoY in July. For the full year, we now expect inflation to reach 3.1% before accelerating to 3.7% in 2013. BSP opted to cut the overnight borrowing rate (OBR) by 25bps to 3.75% at its last policy meeting. With the real OBR still positive at 0.75%, there is still room for further rate cuts if needed. We have penciled in one more 25bps rate cut by the end of the year.

Exports have performed well in the first half of this year. In 1Q, exports were buoyed by a rebound in electronics exports, but this has since fizzled out. In 2Q (April and May data), exports were lifted by a surge in other manufactures. For the first five months of the year, total exports were up by 8.4% (an impressive figure considering the global economic environment) compared to the same period last year.

It is not clear if this trend can be sustained against a backdrop of slowing global growth and final demand is not likely to pick up. Poor performance in the export sector could prompt BSP to take more measures to support the economy. We expect export growth to reach 11.3% YoY in June.

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