Here's what drove Philippine inflation to skyrocket in July

Food price is just a superficial cause.

Philippines CPI inflation surprised on the upside again in July, coming in at the top of the BSP’s expected range.

According to a research note from UBS, statistically, food prices drove the recent acceleration.

However, in the context of the 30%+ expansion in the money supply over the last 18 months and the subsequent acceleration in credit growth, this data may add to concerns that monetary policy is too loose.

UBS believes the expansion in the supply of money has made it more likely for supply shortages to generate price spikes.

However, that conclusion is hard to prove and the BSP will likely tighten monetary policy only gradually as a result.

UBS expects less well behaved inflation in the Philippines going forward and a weaker peso versus the US dollar.