April inflation seen accelerating to 4.6%

Inflation likely further picked up in April to as high as 4.6 percent, economists polled by the Inquirer last week said, citing higher food, electricity and oil prices coupled with a weak peso.

Nomura economist Euben Paracuelles and Pauline May Ann E. Revillas of Metropolitan Bank and Trust Co.’s research department projected an inflation rate of 4.6 percent this month, with the latter citing “still elevated food prices, especially rice, meat and fish.”

The government will release its April inflation report on Friday. In the first quarter, headline inflation averaged 3.8 percent, still within the government’s target range of 2-4 percent, even as it peaked to a more than five-year high of 4.3 percent in March.

“Higher electricity rates and domestic petroleum product prices as well as the weak peso also contributed to the uptrend” in inflation this month, Revillas added. The peso remained at the 52:$1 level in April.

Last week, the Cabinet-level Development Budget Coordination Committee raised the foreign exchange rate assumption for the period 2018 to 2022 to 50-53:$1, from 49-52:$1 previously, on expectations of a weaker peso in the medium term mainly due to looming US interest rate increases.

Ateneo de Manila University economics professor Alvin P. Ang as well as Land Bank of the Philippines market economist Guian Angelo S. Dumalagan forecast 4.5 percent for April.

Ang attributed his projection to “rice and other food item increases.” The National Food Authority’s rice buffer fell to less than a day’s worth this month, putting pressure on domestic prices.

For Dumalagan, headline inflation was expected to pick up further to 4.5 percent in April from 4.3 percent in the prior month amid faster increases in the prices of petroleum products and imported goods.

“Petroleum products showed sharper price hikes for the month due to higher excise taxes, rising global oil costs and a weaker peso. Meanwhile, imported goods likely became more expensive in local currency terms following the steeper annual depreciation of the peso in April. The peso’s weakness can be attributed primarily to US rate hike expectations. The trends in the currency and oil markets are likely to aggravate the inflationary impact of the TRAIN (Tax Reform for Acceleration and Inclusion) Law,” Dumalagan explained.

Republic Act No. 10963 or the TRAIN Law since Jan. 1 this year jacked up or slapped new excise taxes on cigarettes, oil, sugary drinks and vehicles, among other goods, to compensate for the restructured personal income tax regime that raised the tax-exempt cap to an annual salary of P250,000.

Using 2012 prices as new base, ANZ Research economist for South and Southeast Asia Eugenia F. Victorino as well as IHS Markit Asia-Pacific chief economist Rajiv Biswas projected a 4.3-percent year-on-year increase in prices of basic goods in April.

“With Middle East tensions having pushed up the geopolitical risk premium in the world oil price during recent weeks, the price of Brent crude has risen to $75 by end-April. The inflation impact of higher world oil prices will be felt in the April and May CPI (consumer price index) data. Higher world oil prices are expected to push the Philippines’ headline CPI even higher in April, to 4.5 percent year-on-year,” Biswas, for his part, said.

Meanwhile, Capital Economics Asia economist Alex Holmes sees inflation in April easing to 4.1 percent.