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Peso rises after Dec. inflation spikes to 4.2%

The peso closed stronger Friday after inflation hit 4.2% in January, raising the prospect of possible monetary action that would jolt interest rates out of their recent lows.

The peso strengthened by one centavo to P48.07 against the dollar Friday, its high for the day, according to the Bankers Association of the Philippines.

The peso opened at P48.10 and hit a low of P48.11.

The currency was stronger by one centavo from its P48.08 close a week earlier.

Dollar volume dropped to $606 million Friday, from $1.162 billion Thursday.

The peso was at its strongest level since the P47.99 close on Sept. 23, 2016, according to Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort.

He attributed the stronger peso to the market’s reaction to the higher-than-expected inflation reading released Friday morning.

“Inflation data at the two-year high of 4.2% could increase the odds of any upward adjustment in the policy rate from the current record low of 2%,” he said via Viber.

“However, the recent spike in inflation has been largely due to higher food and transportation prices, or mostly supply-side factors or reduced supply, amid signals that any change in monetary policy could only happen if there are second-round inflation effects in terms of higher prices of other affected products and services,” he added.

The Philippine Statistics Authority (PSA) reported Friday that headline inflation rose to 4.2% last month, against the 3.5% in December and 2.9% in January 2020.

January was the fourth consecutive month of rising inflation, coming off a level of 2.5% as recently as October. It was also the highest reading since the 4.4% posted in January 2019.

The January inflation reading exceeded the 3.6% median estimate of a BusinessWorld poll of 16 economists last week, beating even the high forecast of 4.1%. The official target range for the year is 2-4% as set by the Bangko Sentral ng Pilipinas (BSP).

The PSA said prices of the most heavily-weighted element of the consumer basket – food and non-alcoholic beverages – rose 6.2% in January from 4.8% the month prior.

The category has a 38.98% weighting in the Philippine consumer price index basket, the lagest by far.

Mr. Ricafort added that the peso appreciated after manufacturing data showed a smaller year-on-year contraction towards the end of 2020. It also received a boost from the gains in the stock market, where the benchmark Philippine Stock Exchange Composite index (PSEi) rose 1.7% to 7,109.18.

The peso also strengthened ahead of US payrolls data for January on Friday evening Philippine time, a trader said via e-mail. — Beatrice M.Laforga

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