How Philippines dodges inflation risks amidst peso weakness

2.5% inflation forecast in June has been penciled in.

According to DBS, inflation risks are unlikely to be on the radar in the near term despite expectations that robust GDP growth momentum remains intact. Lackluster commodity prices and stable food prices have gone a long way towards keeping a lid on price increases over the past few quarters.

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With the global economy not showing any meaningful signs of a pickup, any increases in commodity prices in the coming months are likely to be muted. Moreover, barring unfavorable weather conditions,food price inflation is also unlikely to accelerate.

That said, one factor (the strength of the peso) that has been helping to keep a lid on inflation has faded somewhat in recent weeks. Since early May, the peso has weakened by around 5% against the greenback amid heightened market volatility asspeculation intensified about potential US tapering.

At this point, we do not think that peso weakness is going to significantly translate into inflationary pressure especially since peso weakness has not been outsized compared to the performance of other currencies in the region.

June inflation is projected to reach 2.5% YoY, down from 2.6% in the preceding month.