Inflation was expected to have remained steady in May, as food prices eased. — PHILIPPINE STAR/ MICHAEL VARCAS
By Luz Wendy T. Noble, Reporter
INFLATION likely remained unchanged for a third straight month in May, as food prices generally stabilized amid the lockdown in the Philippine capital and nearby provinces, economists said.
A BusinessWorld poll of 17 analysts last week yielded a median estimate of 4.5% for May inflation.
If realized, this would mark the third straight month of steady inflation. However, it is still beyond the Bangko Sentral ng Pilipinas’ (BSP) annual 2-4% target and is much quicker than the 2.1% print a year earlier.
The BSP will release its inflation forecast range for the month today (May 31), while the Philippine Statistics Authority will release the official data on June 4.
Analysts noted that food prices have generally stabilized, although prices of pork products remain elevated.
“We are not expecting any easing from meat prices, but we think that other CPI food components have continued to eased month on month due to ample supply from good weather,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said.
“The impact of the lower tariffs on imported pork will only be reflected in consumer price from June onwards,” said Alvin Joseph A. Arogo, Head of Research at the Philippine National Bank.
Executive Order 134 signed earlier this month temporarily lowered the tariffs for pork products to 10% for three months under the current minimum access volume and 20% for the first three months for imports outside the quota. By the fourth to 12th month, applicable tariffs will be at 15% and 25% for in-quota and out-quota pork products, respectively.
With lockdown restrictions still in place, the upside risks from demand also subsided, said HSBC Global Research economist Noelan Arbis.
“Prices have stabilized domestically, driven in large part by ongoing lockdown restrictions in the country. The lockdown has resulted in reduced demand-side pressures as reflected in recent CPI (consumer price index) prints,” Mr. Arbis said.
Metro Manila and surrounding provinces Bulacan, Cavite, Laguna, and Rizal are under general community quarantine with heightened restrictions until today (May 31).
The Health department reported 7,058 new coronavirus disease 2019 (COVID-19) cases as of Sunday, bringing the number of active cases to 53,757.
On the other hand, the uptick in the prices of oil and utilities may have caused quicker inflation, analysts said.
“High fuel prices adding to transport inflation will continue to be a point of concern,” ANZ Research Analyst Rini Sen said.
“We note a probable pickup in transport prices owing to higher public transport fares (tricycles in particular) due to adherence to social distancing guidelines as well as the year-on-year surge in domestic pump prices due to base effects after last year’s oil price swoon,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said.
Global oil prices continue to edge up as demand recovers due to reopening of many economies.
In the local market, data from the Department of Energy showed gasoline, diesel, and kerosene prices rose by P8.50, P7.20, and P5.85 per liter year to date as of May 25, respectively.
“There is also a slight pickup from utilities and/or electricity costs that we anticipate,” Mr. Asuncion said.
Manila Electric Co. said the overall power rate for May increased to P8.5920 per kilowatt-hour (kWh) from the P8.4067 per kWh in April.
In its May policy review, the central bank lowered its inflation forecast for the year to 3.9% from 4.2%, already within its target albeit still much higher than the 2.6% in 2020.
BSP Deputy Governor Francisco G. Dakila, Jr. had said they considered the impact of the lower tariffs on pork prices, slower-than-expected inflation from March to April, the first quarter gross domestic product (GDP) data and its impact on the economy, and the appreciation of the peso.
Most analysts believe the BSP will continue to remain accommodative to support the economy still stuck in recession.
“I still maintain BSP to lean either on a rate cut in June or a RRR (reserve requirement ratio) cut to support the weak economic conditions,” Sun Life Financial economist Patrick M. Ella said.
“Any expectations for a reversal or recalibration of monetary policy at this stage would be detrimental to the growth outlook and could threaten to derail the already fragile recovery prospects,” Mr. Mapa said.
The economy shrank by 4.2% in the January to March period. The government expects GDP to grow by 6-7% this year following the 9.6% contraction in 2020.
Mr. Arbis said the relatively tamer inflation also eases the pressure on the central bank to respond.
“With inflation easing, the pressure on the BSP to act against it has also dissipated. We expect the BSP to keep its policy rate unchanged at 2% for the remainder of the year,” Mr. Arbis said.
Meanwhile, Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said the window for a rate hike is possible to bridge the gap between the current policy rate and the inflation trajectory.
“A still elevated May 2021 inflation print combined with new indicators that may point to sustained increases in global commodity prices, better domestic employment statistics and a slight weakening of the peso may increase the chances of the BSP carrying on their June meeting their first policy rate hike since 2018,” Mr. Neri said.
“This may be necessary to slightly narrow the gap between the policy rate and economy’s medium term inflation trajectory of about 3.5%,” he added.
To recall, the central bank raised the policy rates by a total of 175 basis points in 2018 when inflation spiked.
The BSP in May key policy rate unchanged at 2% to provide continued support for economic recovery from the pandemic.
The Monetary Board will have its next policy-setting meeting on June 24.