Inflation steady at 3.6% in May

The inflation rate remained steady at 3.6 percent in May as the prices of food, beverage and tobacco, which make up a big chunk of the consumer price index basket, dropped significantly from the previous month, the National Statistics Office (NSO) reported yesterday.

The 3.6-percent inflation last month brought the five-month average to 3.6 percent, well within the government’s full-year target of between five and six percent.

The Bangko Sentral ng Pilipinas (BSP) said yesterday it would keep interest rates unchanged following the NSO announcement.

"It gives us a longer period to stay neutral in our monetary policy," BSP Governor Rafael B. Buenaventura said, adding that the BSP is likely to keep its key overnight rate unchanged at a meeting today.

The overnight borrowing rate, at which the BSP borrows from commercial banks, is now at a decade low of seven percent after a cumulative reduction of eight percentage points since December 2000. The lending rate is at 9.25 percent. The last rate cut was in March.

"They have taken their foot off the accelerator (in terms of rate cuts), but with these numbers coming out they could become less concerned about inflation," said Graham Parry, an economist at Lehman Brothers in Tokyo.

Any rate cut would have a knock-on effect on commercial bank rates. It could also dissuade banks from parking excess funds with the BSP, encouraging them to instead increase lending and help boost growth.

Inflation in the National Capital Region (NCR) rose to 5.1 percent in May from 4.9 percent in April as prices of fuel, light and water rose significantly during the month in review.

In areas outside Metro Manila, inflation slowed to three percent in May from 3.1 percent in April as prices of food, beverages and tobacco declined by 0.2 percentage point.

Samir Gomel, Bank of America’s market analyst in Singapore, said the inflation number was unlikely to have an impact on the markets or monetary policy as they were in line with consensus.

"The market expectations were in the range of 3.6 percent to 3.8 percent, so they are relatively quite uninteresting numbers," he said, adding that average inflation in Philippines for the last months had been around 3.6 percent to 3.62 percent.

Andrew Fung, head of Asia-Pacific research at Rabobank in Singapore, said the stronger exchange rate in May had probably helped keep import costs down and thus been a dampener on inflation.