By Katherine K. Chan, Reporter
PHILIPPINE INFLATION likely hit its fastest pace in over three years as elevated oil prices amid the continued Middle East war drove up food costs and kept the peso weak against the dollar, analysts said.
The headline print can have accelerated to 7.9% last month from 7.2% in April and 1.3% a 12 months earlier, in response to a median estimate of 16 economists polled by BusinessWorld.
If realized, this might be the fastest inflation recorded in over three years or because the 8.6% in February 2023.
The median estimate likewise matches the upper sure of the Bangko Sentral ng Pilipinas’ (BSP) 7.1%-7.9% forecast for the month.
It will also make May the third month in a row that the headline inflation settled above the central bank’s 2%-4% goal.
May inflation data will probably be released on June 5.
“We anticipate faster inflation in May mainly resulting from still-elevated crude oil prices, pricier food items, base effects, in addition to spillovers into tertiary sectors,” University of Asia and the Pacific economist Marco Antonio C. Agonia said in an e-mail.
“While global crude oil prices did wind down from April to May this 12 months, pump and bunker fuel prices are still much higher in comparison with last 12 months, continuing to exert upward pressure on inflation readings,” he added.
In May, global oil prices continued to trade around $100 per barrel, higher than the typical $60-$70 per barrel price seen earlier this 12 months.
Meanwhile, pump price adjustments within the domestic market saw a net increase of P5.49 per liter for gasoline in the course of the month but posted a net decrease of P2.13 per liter for diesel and P17.59 per liter for kerosene.
The temporary suspension of the excise tax on kerosene remained in place in May.
In its month-ahead forecast released on Saturday, the BSP said the May inflation print was likely driven by a weaker peso in addition to costlier rice, vegetables, and meat, although lower pump prices and electricity rates offered consumers some relief.
The Manila Electric Co. ended its three-month streak of rate hikes in May because it cut the general monthly bill by P0.0151 per kilowatt-hour (kWh) to P14.3345 per kWh from P14.3496 per kWh in April.
Nonetheless, higher year-on-year rice prices continued to strain households’ budgets, an element analysts said was likely behind the faster inflation last month.
“Despite the autumn in pump prices, increases in rice and other major food items were greater than in a position to outweigh it,” Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said in a Viber message.
The typical cost of local regular milled rice jumped by 17.52% to P50.91 a kilo within the second half of May from P43.32 in the identical period last 12 months, based on Philippine Statistics Authority data.
Meanwhile, the per-kilo price of well-milled rice rose by 15.55% to P57.88 from P50.09 a 12 months earlier, while special rice was 10.51% higher 12 months on 12 months to P65.69 from P59.44 previously.
Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said the peso’s persistent weakness against the dollar compounded price pressures in May.
“Seasonal supply constraints and the lagged effects of earlier peso depreciation also contributed to upward price pressures,” he said in an e-mail.
The peso closed at P61.59 against the greenback on May 29, declining by 10.50 centavos from its P61.485-per-dollar finish on April 30. It plunged to an all-time low close of P61.75 on May 18 and 19.
“While some commodities have begun to ease and base effects offer slight relief, overall inflation stays significantly above goal,” Mr. Asuncion added.
In a separate report on Friday, analysts at MUFG Bank, Ltd. noted that the upcoming May inflation report on June 5 will prove significant for the foreign exchange (FX) market.
“A high print would strengthen the case for a bigger June hike and even off-cycle motion, but PHP (Philippine peso) should still struggle to rally sustainably unless oil prices ease and broader USD (US dollar) sentiment improves,” they added.
JUNE HIKE ‘DONE DEAL’
Meanwhile, analysts at the moment are more convinced that the BSP will tighten for a second straight time this month, as sticky inflation and broader price pressures call for higher-for-longer rates of interest.
China Banking Corp. Chief Economist Domini S. Velasquez said core inflation, which discounts volatile fuel and food prices, can have breached the BSP’s tolerance range in May.
“(C)ore inflation likely picked up from 3.9% to 4.2% in May, breaching the BSP’s goal range for the primary time since 2023,” she said in an e-mail.
BSP Governor Eli M. Remolona, Jr. earlier said they’re closely monitoring core inflation to guide their monetary policy motion amid the crisis.
For Kausani Basak, FX analyst and economist at ANZ Research, the BSP will likely deliver one other 25-basis-point (bp) hike at its upcoming meeting this month, with a bigger 50-bp hike or off-cycle move also on the table.
“We expect the BSP to keep up its hawkish stance going forward and hike the policy rate by 25 bp within the monetary policy meeting in June,” she said in a report on Friday. “Nonetheless, the prospect of a 50-bp or off-cycle hike has increased in recent weeks following BSP’s recent communications.”
In April, the Monetary Board raised its policy rate for the primary time in nearly two years by 25 bps to 4.5%. Mr. Remolona has left the door open to extending their tightening cycle, noting that they wish to bring inflation back to their 2%-4% tolerance range.
Mr. Remolona had also said they’re considering an off-cycle rate hike but may additionally wait until their regular meeting on June 18 before announcing their next decision as they await the May inflation data.
Nonetheless, some analysts remain unsure about an off-cycle increase, noting that an aggressive monetary policy might “do more harm than good” amid lingering growth woes.
“(W)e imagine that there isn’t any need for the BSP to implement an off-cycle hike,” Alvin Joseph A. Arogo, chief economist and head of research division on the Philippine National Bank, said in an e-mail. “Addressing second-round effects through dearer borrowings may do more harm than good since each consumer and business confidence are already impaired because the first-quarter GDP (gross domestic product) data has shown.”
Oil shocks from the Middle East war hit the economy in the primary quarter, as GDP growth slowed to 2.8% from 3% within the previous quarter and 5.4% a 12 months ago.
For Sarah Tan, an assistant director and economist at Moody’s Analytics, waiting until the Monetary Board’s next scheduled policy review will even give them ample time to judge the May inflation report and factor it into their decision.
“We expect the BSP to boost its policy rate by 25 bps on the June meeting because it prioritizes containing inflation and stopping inflation expectations from becoming unanchored,” she said in an e-mail.
“Nonetheless, we don’t expect an off-cycle move. With the May inflation print due just roughly two weeks before the scheduled policy meeting, the BSP will find a way to evaluate the newest data and respond through its regular policy-setting process,” Ms. Tan added.
Security Bank Corp. Chief Economist Angelo B. Taningco likewise said an intermeeting hike is “less likely” but noted that a faster-than-expected May inflation could prompt such a move.