Rate hike imminent as inflation surged in May

AFP FILE PHOTO

The Bangko Sentral ng Pilipinas (BSP) is expected to raise interest rates this month following an acceleration in consumer price increases in May, putting at risk official inflation targets for the year.

More expensive food, fuel and power drove inflation in May to a 30-month high, prompting the BSP to send hawkish signals on tighter policy settings, despite the perceived need to give the economy more breathing room to grow.

“A rate hike from the BSP may no longer be impossible,” Bank of the Philippine Islands (BPI) economist Emilio Neri Jr. said in a note to investors following the release of inflation data.

The government on Thursday reported that inflation accelerated to 4.5 percent in May, the fastest since November 2011 when inflation reached 4.7 percent, faster than April’s 4.1 percent. The BSP’s forecast for May inflation was a range of 3.9 to 4.7 percent.

Economic Planning Secretary Arsenio Balisacan said “the balance of risks to inflation remains slightly tilted toward the upside,” adding drier weather in the third quarter as a result of the El Niño phenomenon could drive food prices up further.

As prices moved higher, the BSP ignored concerns over economic growth getting choked by higher interest rates, saying the Monetary Board’s main focus would be its inflation target for the year.

“We will not hesitate to adjust policy settings should the inflation target be at risk,” BSP Governor Amando M. Tetangco Jr. said in a statement. The central bank wants to keep inflation between 3 and 5 percent this year.

Next year, the BSP has a lower 2-4 percent target range, which puts monetary authorities under more pressure to make early adjustments to stabilize consumer prices by curbing demand.

Average inflation for 2013 is expected to reach 4.3 percent, up from 3 percent last year. In 2015, inflation is expected to moderate at 3.3 percent, which, although slower, will still be above the midpoint of the BSP’s target range for the year.