May inflation nearly breached gov’t target

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) said there was still a possibility that inflation could overshoot the target range in the coming months due to persistent “upside” risks, from higher transport costs and more expensive food items, as it reached its highest in six months in May.

Preliminary data from the Philippine Statistics Authority showed the consumer price index went up a notch to 3.9 percent from 3.8 percent a month prior, albeit well within market expectations.

The number, however, came within a hair’s breadth of the upper end of the BSP’s target range of 2 percent to 4 percent.

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“The inflation outturn is consistent with the BSP expectations that inflation could temporarily accelerate above the target range over the near term due to adverse weather conditions on domestic agricultural output and positive base effects,” the BSP said in a statement.

But the central bank nevertheless said average inflation for this year was still expected to settle within the target band.

Expensive bills

The government attributed May’s numbers to more expensive water, electricity, housing, and fuels, whose prices quickened to 0.9 percent versus the 0.4 percent growth in April.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said utility prices were higher as the country continued to deal with the scorching heat of summer. He also blamed the weaker peso, which made it more expensive for power companies to generate electricity.

For the first five months, inflation averaged 3.5 percent, still lower than the 7.5 percent recorded in the same period last year.

“This encouraging development in inflation, despite risks still tilted to the upside, could prompt the central bank to adopt an even less hawkish stance in its policy meeting this June,” economists at Chinabank Research said in a commentary.

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“Furthermore, they also increase the chance of the BSP kicking off its monetary easing cycle this year, which could even begin earlier than initially expected,” they added.

Robert Dan Roces, economist at Security Bank Corp., added the “lower-than-expected” inflation in May could spell relief for the central bank. He noted, however, that the BSP should remain cautious of the weakening peso.

“The BSP will likely adopt a wait-and-see approach stemming from US monetary policy. The upcoming developments in transportation costs, electricity rates, and minimum wages are crucial factors to monitor in the coming months, as they will significantly impact the inflation trajectory,” Roces said in an email.

The BSP would consider the May inflation print at its policy meeting on June 27. Governor Eli Remolona Jr. had said the BSP may cut rates ahead of the US Federal Reserve, which he predicted could begin easing in July.