BSP: Inflation likely rose to 3.1-3.9%

Higher fuel, electricity, and rice prices, along with the peso’s weakness, likely pushed inflation to the fastest in around two years, the Bangko Sentral ng Pilipinas (BSP) said on Tuesday.

In its latest month-ahead inflation forecast, the BSP said inflation likely settled between 3.1% and 3.9% in March, faster than the 1.8% clip a year ago and 2.4% in February.   

At the upper end of the forecast, inflation may have accelerated to its fastest pace in over two years or since the 4.1% in November 2023. It would also match the headline inflation logged in May 2024.

Meanwhile, at the bottom end, inflation would be the fastest print in 19 months or since the 3.3% clip in August 2024.

The central bank said cheaper prices of vegetables, fish and meat likely tempered price pressures during the month, but rising costs of fuel, electricity and rice weighed on the headline print.

“Inflation risks have intensified with upward price pressures arising from the significant increase in domestic petroleum prices, higher rice prices, increased electricity charges in Meralco-serviced areas, and depreciation of the peso,” it said in a statement. 

Local pump prices have soared since the US and Israel launched attacks against Iran in late February.

In March, fuel retailers raised pump prices by up to PHP 43.50 a liter for gasoline, PHP 67.35 per liter for diesel and PHP 70.90 per liter for kerosene.

Meanwhile, Manila Electric Co. (Meralco) hiked electricity rates by 64.27 centavos per kilowatt-hour (kWh) to PHP 13.8161 per kWh last month from PHP 13.1734 per kWh in February. This meant households consuming 200 kWh monthly paid about PHP 129 more in their electricity bill for March.

Rice prices also continued to climb in March, with the average cost of local regular milled rice increasing by 5.8% to PHP 48.69 a kilo in the second half of the month from PHP 46.02 a year earlier.

The price of well-milled rice jumped by 8.02% year on year to PHP 56.68 a kilo, while the price of special rice climbed by an annual 3.79% to PHP 64.07 a kilo.

On the other hand, the local currency likewise took a hit from a strong dollar amid the Middle East war.

On Tuesday, the peso lost 5.8 centavos to close at a new all-time low of PHP 60.748 against the greenback from its previous record finish of PHP 60.69 on Monday, Bankers Association of the Philippines data showed.

Michael Wan, a senior currency analyst at MUFG Global Markets Research, sees the local unit underperforming amid pressures from looming oil shortages and spillovers to other sectors on top of price shocks.

“We think the next phase for Asian currencies may be a shift towards concerns around growth and with that greater risk aversion in markets if the Iran conflict prolongs,” he said in a note on Tuesday. “This will likely mean growth sensitive and current account deficit in emerging market currencies will likely show greater magnitude of underperformance moving forward, including the likes of INR (Indian rupee), PHP (Philippine peso), IDR (Indonesian rupiah), and KRW (Korean won).”

In a March 30 note, Metropolitan Bank & Trust Co. (Metrobank) also said inflation will likely continue to pick up in the coming months amid persisting oil risks from the ongoing Middle East war.

It likewise expects the peso to remain weak in the near term as uncertainties surrounding the war continue to attract safe-haven demand for the US dollar.

This may push the central bank to hike its policy rate before yearend to tame inflation, Metrobank added.

“Metrobank still sees continued upside oil risk, as the Strait of Hormuz, a critical transit point for global oil shipments, remains closed,” it said. “We also expect the Bangko Sentral ng Pilipinas to raise their policy rate this year to combat rising inflation.”

Last week, the BSP maintained its policy rate at 4.25% in an off-cycle meeting as it noted that emerging inflation pressures are supply-driven, in which policy adjustments have little impact.   

The BSP’s next policy review is on April 23.

However, BSP Governor Eli M. Remolona, Jr. hinted that future policy decisions will hinge on second-round price effects, adding that a worst-case scenario of USD 200-a-barrel oil price will force them to tighten.

Global oil prices have been hovering around USD 100 a barrel in recent weeks. Brent crude futures went up about 2% to USD 114.98 per barrel on Tuesday, bringing total gains for the month to its highest ever at around 59%, Reuters reported.   

The BSP said it will keep assessing the implications of the Middle East conflict on local inflation and economic activity. — Katherine K. Chan, Reporter