May inflation may have hit a high of 5.4%, say BSP economists

Central bank economists expect prices of goods and services to have risen at a more rapid clip in May as higher cost of fuel and rice pushed up the inflation rate across more sectors of the economy.

In a statement, the Department of Economic Research of the Bangko Sentral ng Pilipinas said it was projecting the inflation rate in May to settle within the 4.6-5.4 percent range—higher than the April inflation rate of 4.5 percent which was a five-year high.

“Higher domestic petroleum prices amid geopolitical tensions in the Middle East as well as the sustained increase in rice prices present upward price pressures for the month,” the central bank economists said.

They explained, however, that the higher fuel and rice prices could be partly offset by lower electricity rates in areas served by Manila Electric Co. along with lower prices of selected fruits and fish items as supply conditions normalized during the month.

The BSP raised interest rates by 25 basis points in early May—the first rate hike since September 2014—in what was widely seen as a belated attempt to cap the inflation rate caused by rising crude oil prices internationally, aggravated by the tax hikes implemented by the Duterte administration this year.

Top BSP officials had originally justified their decision to stand pat on interest rates by saying that the inflation rate would correct itself by next year. More recently, however, the central bank has been highlighting its more hawkish language and stressing that it would not hesitate to tighten monetary policy further if it would see additional signs that price increases were becoming more broad based.

Many bankers and analysts now expect the central bank’s policymaking Monetary Board to hike its key overnight borrowing rate—on which banks base their commercial loan prices—by at least another 25 basis points this year.

“Going forward, the BSP will remain watchful of evolving price trends and ensure that the monetary policy stance remains appropriate to maintain price stability that is conducive to a balanced and sustainable economic growth,” the central bank economists said in their statement. Daxim L. Lucas