By Katherine K. Chan, A reporter
PHILIPPINE INFLATION is possible hit its fastest pace by more than three times years as high oil prices amid the ongoing war in the Middle East pushed up food costs and kept the peso weak against the dollar, say analysts.
Headline printing is likely to have risen to 7.9% last month from 7.2% in April and 1.3% a year earlier, according to an average of 16 economists polled. BusinessWorld.
If possible, this would be the fastest rate of inflation on record in three years or from 8.6% in February 2023.
The average rate also matches the upper limit of the Bangko Sentral ng Pilipinas’ (BSP) forecast of 7.1%-7.9% for the month.
It could also make May the third month in a row that inflation stayed above the bank’s target is between 2%-4%.
May inflation data will be released on June 5.
“We expect inflation to accelerate in May mainly due to the increase in crude oil prices, more expensive food, basic effects, and flows to higher sectors,” University of Asia and the Pacific economist Marco. Antonio C. Agonia said in an email.
“Although global crude oil prices fell from April to May this year, pump and bunker fuel prices are still very high compared to last year, continuing to put upward pressure on inflation readings,” he added.
In May, oil prices around the world continued to trade around $100 per barrel, higher than the average $60-$70 per barrel price seen earlier this year.
Meanwhile, the pump price adjustment in the domestic market increased by P5.49 per liter of gasoline during the month but decreased the total price by P2.13 per liter of diesel and P17.59 per liter of kerosene.
The temporary suspension of excise duty on kerosene remains in place in May.
In its month-ahead forecast released on Saturday, the BSP said May’s inflation print is likely to be driven by a weaker peso and more expensive rice, vegetables, and meat, although lower tap prices and electricity levels provide some relief to consumers.
Manila Electric Co. ended its three-month rate hike streak in May as it lowered its monthly rate by P0.0151 per kilowatt-hour (kWh) to P14.3345 kWh from P14.3496 per kWh in April.
However, high annual rice prices continued to weigh heavily on household budgets, which analysts said could after a rapid fall in inflation last month.
“Despite the drop in pump prices, the increase in rice and other major food items was more than manageable,” Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said. in a Viber message.
The average price of local milled common rice jumped 17.52% to P50.91 a kilo in the second half of May from P43.32 in the same period last year, based on data from the Philippine Statistics Authority.
Meanwhile, the price of finely milled rice per kilo increased by 15.55% to P57.88 from P50.09 last year, while specialty rice was up 10.51% year-on-year to P65.69 from P59.44 previously.
Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said the continued weakness of the peso against the dollar added to price pressure in May.
“Seasonal supply constraints and the lingering effects of previous peso devaluations also contributed to increased price pressures,” he said in an email.
The peso closed at P61.59 against the greenback on May 29, down 10.50 centavos from its close of P61.485-per-dollar on April 30. It sank to a low close of P61.75 on May 18 and 19.
“Although some factors have started to ease and the basic results provide some relief, overall inflation remains above target,” said Mr. Asuncion.
In a separate report on Friday, analysts at MUFG Bank, Ltd. noted that the upcoming May inflation report on June 5 will prove important to the foreign exchange (FX) market.
“A higher print could strengthen the case for a big June hike or even a cyclical move, but the PHP (Philippine peso) may not rally further unless oil prices fall and broader USD (US dollar) sentiment improves,” they added.
JUNE TRAVEL ‘DONE’
Meanwhile, analysts are increasingly confident that the BSP will tighten for the second time this month, as sticky inflation and broader price pressures call for it. high interest rates are long.
China’s Chief Economist Domini S. Velasquez said lower core inflation, which dampens volatile fuel and food prices, is likely to breach the BSP’s tolerance level in May.
“(C)ore inflation is likely to increase from 3.9% to 4.2% in May, breaching the BSP’s upper bound target for the first time since 2023,” he said in an email.
BSP Governor Eli M. Remolona, Jr. He previously said that they are closely monitoring inflation to guide their monetary policy actions during this crisis.
For Kausani Basak, FX analyst and economist at ANZ Research, the BSP is likely to deliver another 25 basis point (bp) hike at its next meeting this month, with a larger 50-bp hike or off-cycle move also on the table.
“We expect the BSP to maintain its stance and raise the policy rate by 25 bp at the monetary policy meeting in June,” he said in a report on Friday. “However, the possibility of a 50-bp hike or off-cycle has increased in recent weeks following the BSP’s recent communications.”
In April, the Monetary Board raised its policy rate for the first time in almost two years by 25 bps to 4.5%. Mr. Remolona left the door open to extending their tightening cycle, noting that they want to bring inflation back to their 2%-4% tolerance level.
Mr. Remolona had also said that they are considering a cyclical rate hike but may wait until their regular meeting on June 18 before announcing their next decision as they await May’s inflation data.
However, some analysts remain skeptical about the upturn in the cycle, noting that aggressive monetary policy could “do more harm than good” amid ongoing growth problems.
“(W)e believe there is no need for the BSP to embark on an off-cycle hike,” said Alvin Joseph A. Arogo, chief economist and head of research at the Philippine National Bank, in an e-mail. “Addressing the second round of high-cost borrowing could do more harm than good as both consumer and business confidence have already been damaged as first quarter GDP (gross domestic product) data showed.”
Oil shocks from the Middle East war affected 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, assistant director and economist at Moody’s Analytics, waiting until the next scheduled policy review of the Monetary Board will give them enough time to evaluate the May inflation report and factor it into their decision.
“We expect the BSP to raise the policy rate by 25 bps at the June meeting as it prioritizes containing inflation and preventing inflation expectations from becoming entrenched,” he said in an email.
“However, we do not expect any movement from outside the cycle. Since the inflation print for May will be required about two weeks before the scheduled policy meeting, the BSP will be able to assess the latest data and respond according to its policy.a big policy-making process,” Ms Tan added.
Security Bank Corp.’s chief economist. Angelo B. Taningco also said a price hike between meetings is “unlikely” but noted that May’s faster-than-expected inflation may trigger the move.
