Inflation further eased in May — BSP

Head inflation may have decelerated within the 5.8% to 6.6% range in May due to lower prices of fuel, poultry, and fish, the Bangko Sentral ng Pilipinas (BSP) said on Wednesday.     

If realized, inflation would exceed the BSP’s 2-4% target for the 14^th consecutive month. Inflation eased for a third straight month in April to 6.6%.

The lower end of the BSP’s forecast or 5.8% would be the slowest pace recorded in a year or since the 5.4% recorded in May 2022.

The Philippine Statistics Authority will release the May inflation data on June 6.

“The cumulative rollback in domestic petroleum prices as well as lower poultry and fish prices and electricity rates of various regional power distributors could lead to lower inflation in May,” the BSP said.

In May alone, pump price adjustments stood at a net decrease of PHP 1.45 a liter for gasoline, PHP 2 a liter for diesel, and PHP 3.2 a liter for kerosene.    

“Higher prices of rice, vegetables, and other key food items as well as the increase in liquefied petroleum gas and Manila Electric Co. (Meralco) electricity rates are the primary sources of upward price pressures for the month,” the central bank said in a statement.

Cooking gas prices rose by PHP 0.85 per kilogram in May, ending two months of price cuts.

Meralco customers faced higher electricity bills in May as the overall rate for a typical household went up by PHP 0.1761 to PHP 11.4929 per kilowatt-hour.

“Going forward, BSP will continue to monitor developments affecting the outlook for inflation and growth in line with its data-dependent approach to monetary policy formulation,” the central bank added. 

BSP Governor Felipe M. Medalla earlier said he expects inflation to ease back to the 2-4% target by September or October.

The BSP sees inflation averaging 5.5% for this year, before slowing to 2.8% in 2024.    

Makoto Tsuchiya, assistant economist from Oxford Economics Japan, said he expects inflation to slow to 6.3% this month, due to base effects for fuel prices and electricity rates.

Last year, global and local pump prices spiked amid the Russia-Ukraine war. This prompted the government to raise the minimum public transport fare, which fueled inflation. 

“We also expect food prices to decline amid easing supply-side bottlenecks, in part thanks to the ramped-up food importation,” he said.

Colegio de San Juan de Letran Graduate School Associate Professor Emmanuel J. Lopez said he expects May inflation to settle at 6%, slower than April’s 6.6% amid persistently high food, energy, and transport costs.

Mr. Lopez also noted that supply pressures due to “high energy cost, fluctuating price of basic petroleum products plus the threat of El Niño that serves to distract agricultural productivity,” are still risks to the inflation outlook. 

Meanwhile, Mr. Tsuchiya said inflation will continue to ease for the rest of the year, settling within the 2-4% central bank target band by October.

“Favorable base effects will bring down annual growth, while we expect modest sequential price momentum,” he said, adding that weather disturbances such as typhoons and the El Niño phenomenon are still upside risks.

Still, easing inflation would prompt the Monetary Board to keep policy rates on hold for the rest of the year, before it starts cutting borrowing costs in the first quarter next year, Mr. Tsuchiya said.

“Barring any large-scale supply chain disruptions, the BSP now has less incentive to hike given declining inflation as well as our expectation that the US Fed reached the peak in its tightening cycle,” he said.

Earlier, Mr. Medalla signaled that the Monetary Board (MB) may keep policy rates on hold at the next two to three meetings as inflation cools.

The MB paused its aggressive tightening cycle at its May 18 meeting. Since May last year, the BSP has raised key interest rates by 425 basis points to 6.25%.

The MB’s next three policy meetings are scheduled on June 22, August 17 and September 21. — By Keisha B. Ta-asan, Reporter