By Katherine K. Chan, Reporter
PHILIPPINE INFLATION likely hit its fastest pace in over three years as elevated oil prices amid the ongoing Middle East war drove up food costs and kept the peso weak against the dollar, analysts said.
The headline print may have accelerated to 7.9% last month from 7.2% in April and 1.3% a year earlier, according to a median estimate of 16 economists polled by BusinessWorld.
If realized, this would be the fastest inflation recorded in over three years or since the 8.6% in February 2023.
The median estimate likewise matches the upper bound of the Bangko Sentral ng Pilipinas’ (BSP) 7.1%-7.9% forecast for the month.
It would also make May the third month in a row that the headline inflation settled above the central bank’s 2%-4% target.
May inflation data will be released on June 5.
“We anticipate faster inflation in May mainly due to still-elevated crude oil prices, pricier food items, base effects, as well as 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 year, pump and bunker fuel prices are still much higher compared to last year, 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 average $60-$70 per barrel price seen earlier this year.
Meanwhile, pump price adjustments in the domestic market saw a net increase of P5.49 per liter for gasoline during 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 as well as 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 as it cut the overall monthly bill by P0.0151 per kilowatt-hour (kWh) to P14.3345 per kWh from P14.3496 per kWh in April.
However, higher year-on-year rice prices continued to strain households’ budgets, a factor analysts said was likely behind the faster inflation last month.
“Despite the fall in pump prices, increases in rice and other major food items were more than able to outweigh it,” Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said in a Viber message.
The average cost of local regular milled rice jumped by 17.52% to P50.91 a kilo in the second half of May from P43.32 in the same period last year, 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 year earlier, while special rice was 10.51% higher year on year 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 remains significantly above target,” 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 larger June hike or even off-cycle action, but PHP (Philippine peso) may still struggle to rally sustainably unless oil prices ease and broader USD (US dollar) sentiment improves,” they added.
JUNE HIKE ‘DONE DEAL’
Meanwhile, analysts are now 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 interest rates.
China Banking Corp. Chief Economist Domini S. Velasquez said core inflation, which discounts volatile fuel and food prices, may 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 target range for the first time since 2023,” she said in an e-mail.
BSP Governor Eli M. Remolona, Jr. earlier said they are closely monitoring core inflation to guide their monetary policy action amid the crisis.
For Kausani Basak, FX analyst and economist at ANZ Research, the BSP will likely deliver another 25-basis-point (bp) hike at its upcoming meeting this month, with a larger 50-bp hike or off-cycle move also on the table.
“We expect the BSP to maintain its hawkish stance going forward and hike the policy rate by 25 bp in the monetary policy meeting in June,” she said in a report on Friday. “However, the chance 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 first 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 want to bring inflation back to their 2%-4% tolerance range.
Mr. Remolona had also said they are considering an off-cycle rate hike but may also wait until their regular meeting on June 18 before announcing their next decision as they await the May inflation data.
However, 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 believe that there is no need for the BSP to implement an off-cycle hike,” Alvin Joseph A. Arogo, chief economist and head of research division at the Philippine National Bank, said in an e-mail. “Addressing second-round effects through more expensive borrowings may do more harm than good since both consumer and business confidence are already impaired as the first-quarter GDP (gross domestic product) data has shown.”
Oil shocks from the Middle East war hit the economy in the first quarter, as GDP growth slowed to 2.8% from 3% in the previous quarter and 5.4% a year ago.
For Sarah Tan, an assistant director and economist at Moody’s Analytics, waiting until the Monetary Board’s next scheduled policy review will also give them ample time to evaluate the May inflation report and factor it into their decision.
“We expect the BSP to raise its policy rate by 25 bps at the June meeting as it prioritizes containing inflation and preventing inflation expectations from becoming unanchored,” she said in an e-mail.
“However, we do not expect an off-cycle move. With the May inflation print due just roughly two weeks before the scheduled policy meeting, the BSP will be able to assess the latest 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.
