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BusinessWorld 3 MIN READ

High oil prices likely to keep inflation elevated

April 23, 2023By BusinessWorld
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INFLATION may remain elevated amid an anticipated increase in global crude oil prices due to the planned output cut by the Organization of the Petroleum Exporting Countries and its allies (OPEC+), First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) said.

“If consumer prices continue their downward trend, full-year inflation may go slightly below 6%. However, with the recent huge barrel production cut announced by OPEC+, we keep our original 6.3% projection, unless the announced cut fizzles and turns into mere optics,” FMIC and UA&P said in their Market Call on Sunday.

Earlier this month, OPEC and its allies, including Russia, announced oil output reductions of around 1.16 million barrels per day.

Inflation eased to a six-month low of 7.6% in March from 8.6% in February. This brought the average inflation rate in the first quarter to 8.3%, above the BSP’s full-year forecast of 6% and 2-4% target band.

“Inflation should ease further to an average 6.6% year on year in Q2 despite higher crude oil prices and fall to low 5% level by September. The peso-dollar rate will weaken due to the jump in petroleum product prices,” FMIC and UA&P said.

Despite slower inflation seen in March, FMIC and UA&P said the BSP will likely continue tightening policy.

“The BSP will likely proceed with raising its policy rates by 25 bps in its May meeting. However, we expect a pause thereafter,” FMIC and UA&P said.

BSP Governor Felipe M. Medalla earlier said the BSP may pause its tightening cycle if inflation further slows in April. He also said a potential cut may happen this year if inflation continues to ease in the next six months.

April inflation data is set to be released on May 5. The Monetary Board will meet on May 18 to discuss policy.

The BSP raised benchmark interest rates by 425 basis points (bps) since May last year, bringing the key policy rate to a near 16-year high of 6.25%.    

Meanwhile, FMIC and UA&P maintained the first-quarter gross domestic product (GDP) forecast at 7.1%.

“We expect a spritely GDP expansion in the first quarter as our deeper dive into recently released economic data uncovered surprisingly solid growths,” they said, noting positive employment numbers, infrastructure spending, and manufacturing output.

Domestic demand may have also helped drive growth during the January-to-March period.

“The income tax cut and the downward trend in inflation should provide support although the recent crude oil price surge would clip that partially. Besides, we expect the government, and private sector, through public-private partnerships, will have ramped up infrastructure spending after the usual hesitancy of agencies in the first month of the year,” FMIC and UA&P said.

The government is targeting 6-7% GDP growth this year, slower than the 7.6% expansion in 2022.

The local statistics authority is set to release first-quarter GDP data on May 11. — By Luisa Maria Jacinta C. Jocson

This article originally appeared on bworldonline.com

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