Expect inflation at new 5-year high in May

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) said the inflation rate for May likely accelerated  to a fresh five-year high, ranging from 4.6 to 5.4 percent due to elevated rice and domestic petroleum prices.

The BSP’s Department of  Economic Research said higher domestic petroleum prices coupled with geopolitical tensions in the Middle East as well as the sustained increase in rice prices created an upward pressure on prices last month.

Inflation leapt to a fresh five-year high of 4.5 percent in April from 4.3 percent in March due to rising global oil prices as well as the impact of the new tax reform law. The central bank said the higher inflation could be partly offset by lower electricity rates in Meralco-serviced areas along with lower prices of selected fruits and fish items as supply conditions normalized for the month.

“Going forward, the BSP will remain watchful of evolving price trends and ensure that the monetary policy stance remains appropriate to maintain price stability that is conducive to a balanced and sustainable economic growth,” it said.

Inflation averaged 4.1 percent in the first four months and exceeded the two to four percent target set by the BSP.

BSP Deputy Governor Diwa Guinigundo had said inflation would peak in the fourth quarter due to elevated global oil prices, as well as the impact of the new tax reform law.

The BSP has considered the impact of the expected gain in domestic economic activity starting the second and fourth quarter after the gross domestic product (GDP) expansion accelerated to 6.8 percent in the first quarter from the revised 6.5 percent in the fourth quarter.The BSP sees global oil prices rising to $67.84 per barrel this year before easing to $64.81 per barrel next year. It expects elevated readings of oil prices at about $70 per barrel in June.

It also expects to see some adjustment in the minimum wage in October as it has considered an P18 or 3.6 percent average increase in the minimum wage.

The BSP’s Monetary Board raised interest rates for the first time in more than three years with a 25 basis point hike last May 10 as inflation forecasts have shifted higher, indicating that inflation pressures could become more broad-based over the policy horizon.

The central bank assessed the balance of risks to the inflation outlook continues to lean toward the upside, with price pressures emanating from possible adjustments in transport fares, utility rates, and wages.

The next rate-setting meeting of the BSP’s Monetary Board is scheduled on June 21.

Finance Undersecretary Karl Kendrick Chua had said inflation rose mainly because of local and global factors including the spike in rice prices due to alleged lack of supply, weak peso, rising oil prices abroad, better tax compliance of local cigarettes, and growing consumer demand, but not due to the implementation of the TRAIN Law.