• Philippines’ headline inflation rate slowed to a four-month low of 2.3% yoy in September from 2.4% in August.
• In Thailand, the headline inflation rate declined for the seventh consecutive month by 0.7% yoy in September from -0.5% in August.
• In Singapore, retail sales in August declined by slower pace of 5.7% yoy from -8.5% in July.

Low inflation rates in Philippines and Thailand expected in coming months

Philippines’ headline inflation rate slowed to a four-month low of 2.3% yoy in September from 2.4% in August. The country’s inflation has slowed for a second straight month due to lower prices of food and non-alcoholic beverages. However, the increase in global oil prices during the month led to a rise in domestic retail fuel prices, as reflected in the increase of transport costs. Other rises in costs were also registered for alcoholic beverages and tobacco (+12.9%), housing, water, electricity, gas and other fuels (+1.2%) and communication (+0.4%). Core-inflation in September increased to 3.2% yoy versus 3.1% in August. Headline inflation rate averaged 2.5% yoy in the first nine months of 2020 (2.8% in Jan-Sept 2019), but remains within the official target of between 2% to 4%. With food prices remaining stable, we expect inflationary pressure to remain under control in 4Q20, supported also by expectations of slower consumer demand amid softening labour market conditions. Bangko Sentral Ng Pilipinas (BSP) is projecting the country’s headline inflation to average around 2.3% in 2020, as inflation pressures remain limited. We believe BSP will likely leave its policy rate unchanged at 2.25% throughout 2020.

In Thailand, the headline inflation rate declined for the seventh consecutive month by 0.7% yoy in September from -0.5% in August. Costs of transportation and communication declined by -5.0% yoy in September (-4.5% in August), while prices of food & beverages (F&B) slowed to 1.4% yoy in September (1.6% in August). We believe inflationary pressure in Thailand will be low in the months ahead. The country’s economy suffered its biggest contraction in 22 years in 2Q20 by -12.2% yoy, due to sharp decline in tourism and domestic activity. The country’s unemployment rate also increased to 1.95% in 2Q20. Thailand’s authority already guided that unemployment rate in the country may increase from 1% to between 3% to 4% this year, close to a level seen during the 1997/98 Asian financial crisis. With weak domestic demand and low global oil prices, as well as country’s inflation remaining low, we expect BOT to maintain its policy rate at 0.5% in 2020.

Separately, in Singapore, retail sales in August declined by a slower pace of 5.7% yoy from -8.5% in July. Excluding sales of motor vehicles, retail sales also dropped by 8.4% yoy in August from -7.7 in July. The smaller decline in retail sales was due to higher demand for new and used cars during the month. However, most retail industries in August registered contraction in sales, with the exception of motor vehicles, which rose by 12.1% during the month. The tapered growth rates compared from June and July may indicate that domestic pent-up demand may gradually dissipate. We anticipate weak labour market conditions will continue to dampen consumer demand amid lower purchasing power. However, the possible introduction of travel bubbles with countries deemed safe will lend some support to retail sales.

Source: Affin Hwang Research - 9 Oct 2020