Lower inflation possible this year

MANILA, Philippines — Inflation could ease to below six percent this year, according to First Metro Investment Corp. (FMIC) and University of Asia and the Pacific (UA&P) Capital Markets Research.

“If consumer prices continue their downward trend, full-year inflation may go slightly below six percent,” FMIC and UA&P said in the Market Call report for April 2023 released yesterday.

Given the recent production cut announced by the Organization of the Petroleum Exporting Countries (OPEC), the two institutions said they are, however, sticking to their 6.3 percent inflation projection for this year.

Last March, inflation eased to 7.6 percent from February’s 8.6 percent due to slower increases in food and transport prices.

The March inflation print is the lowest since the 6.9 percent in September 2022.

For the January to March period, inflation averaged 8.3 percent.

“Inflation should ease further to an average 6.6 percent year-on-year in Q2 despite higher crude oil prices, and fall to a low five percent level by September,” FMIC and UA&P said.

Despite inflation easing in March, FMIC and UA&P said they expect the Bangko Sentral ng Pilipinas (BSP) to hike policy rates by 25 basis points in May in response to the spike in crude oil prices.

“However, we expect a pause thereafter,” the two institutions said.

The BSP has so far raised key policy rates by a total of 425 basis points since May last year, bringing the overnight reverse repurchase rate to 6.25 percent.

In the same report, FMIC and UA&P also said they are still projecting the economy to grow by 7.1 percent in the first quarter, with growth to be supported by domestic demand.

“The income tax cut and the downward trend in inflation should provide support, although the recent crude oil price surge (due to huge OPEC production cut) would clip that partially,” the two institutions said.

In addition, they said the government is expected to have ramped up infrastructure spending after the usual hesitancy of agencies seen at the start of the year.

Downside risks to growth cited by the two institutions are the weakness in the global economy and elevated domestic inflation