PH inflation likely breached 8% in May, foreign banks say
Persistent price pressures tied to the conflict in the Middle East may have pushed domestic inflation above 8 percent in May, three global banks said, reinforcing expectations that the central bank could raise interest rates again soon.
In a note to clients, analysts at MUFG Global Markets Research said consumer prices likely rose 8 percent from a year earlier last month, from 7.2 percent in April.
The inflation report due on June 5, MUFG said, could prove pivotal in determining whether the Bangko Sentral ng Pilipinas (BSP) delivers a large rate increase before or at its scheduled policy meeting on June 18.
“This matters because BSP Gov. Eli Remolona Jr. has already signaled that policymakers are considering another hike, potentially off-cycle,” MUFG said.
The bank expects the BSP to raise its benchmark rate by a total of 0.75 percentage point this year to 5.25 percent, including what it described as a “good chance” of an outsized half-point increase this month.
Power, food costs
Separately, economists at Deutsche Bank estimated inflation accelerated to 8.1 percent in May, citing higher electricity tariffs that may have offset declines in fuel pump prices. Rising food costs also contributed to price pressures, the bank said.
“Basic goods prices are expected to rise after price freezes faded from May 10, while the passthrough of retail rice prices to headline inflation is still incomplete,” Deutsche Bank said.
An Inquirer poll of 12 economists yielded a median estimate of 7.7 percent for May inflation, within the BSP’s forecast range of 7.1 percent to 7.9 percent. Both the consensus estimate and the central bank’s projection suggest inflation may have climbed to a fresh three-year high last month, remaining above the BSP’s 2-percent to 4-percent target range for a third consecutive month.
Already, the BSP raised its key policy rate by a quarter point to 4.5 percent at its April 23 meeting amid a “deteriorating” inflation outlook. The central bank said inflation may average 6.3 percent this year and 4.3 percent in 2027.
Policymakers said they were “committed to fulfilling [their] primary mandate of slow inflation and will take necessary actions to ensure inflation returns to its 3-percent target within a reasonable time.” Meanwhile, Remolona has said that “it’s a toss-up whether we do an off-cycle [rate hike] or we just wait for the regular meeting, which is not that far away anyway.”
In a note, DBS Group Research said inflation may have bolted 8.3 percent in May, adding that the BSP, like Indonesia’s central bank, is expected to further tighten monetary policy settings this year.
“Weather-related impact on food crops will also have varying effects on food inflation,” DBS said. “Nonetheless, besides inflation, financial market volatility has also influenced the direction of central bank policy.”
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