Philippine inflation likely to edge up to 4.5% by end-2013

Monetary tightening may loom.

According to DBS, March inflation numbers are due this Friday and they expect headline CPI to remain unchanged at 3.4% YoY.

Inflation has been benign despite the strong surge in GDP growth over the past few quarters.

Stable food prices have been a key factor behind muted price pressures and the strength of the peso has also reduced imported inflation.

Here's more from DBS:

However, conditions are aligning for a pickup in inflation over the coming quarters. Notably, there has been progress on the public-private partnership (PPP) projects and investment pledges reached a record high of USD 15.9bn last year.

Coupled with robust domestic consumption, the realization of investments and construction of the PPP projects will add to demand-pull pressures down the line.

Moreover, the cumulative 100bps reduction in the special deposit account (SDA) rate this year is likely to prompt faster credit growth.

We expect headline inflation to drift towards 4.5% by the end of this year and this would necessitate some monetary tightening by the central bank (BSP).

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