A month after tropical storm Ketsana (Ondoy) and subsequently typhoon Parma
(Pepeng) tragically hit Manila and Northern Luzon respectively; official
estimates of the storms' impact on GDP are still modest at 0.3ppts.
However, the lack of activity data has raised the degree of uncertainty to
the government forecast of 0.8-1.8% growth in 2009 and our own forecast of
5% growth in 2010, while concerns over the impact on balance sheets and
NPLs have increased.
High frequency Bureau of Agriculture data does suggest a clear impact on
some food prices. However, in part because of price controls, to date the
price impact does not seem to be widespread. As such we expect the price
effect of the storms to be temporary - there is already evidence that the
more exceptional rises in prices are reversing. But the high weight of food
in the Philippines CPI means October inflation (due 5-October) could
potentially jump 0.5-2ppts nonetheless. With international (Thai) rice
prices edging lower and atmospheric indicators suggesting a mild El-Niño,
any jump in inflation in the next couple of months should unwind in due
course.
Given the price rises so far, we revised our average CPI forecast for 2009
to around 3.7% from 3.2% and for 2010 to around 3.9% from 3.8% at the same
time as the publication of our 2011 forecast. Both these outcomes are
within the BSP's 4.5% +/-1ppt inflation target range for 2010. Policy
makers will likely continue to focus on rebuilding and mitigating the
storms' damage on lives and property, not the limited medium term inflation
risks posed by the storm. No change in policy is likely to be forthcoming
from the 5 October BSP monetary policy meeting.
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