DBS tabs April inflation at 1.4%

MANILA, Philippines – Inflation is expected to climb for the second straight month in April due to rising oil prices as well as volatile food prices, DBS Bank Ltd. of Singapore said in a report.

Gundy Cahyadi, economist at DBS, said inflation is likely to pick up to 1.4 percent in April from 1.1 percent in March as it moves closer toward the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP).

“Uncertainties about food prices persist, even if food inflation is currently soft. While inflation is currently below target, we continue to see upside risks on inflation going forward, especially considering the huge impact from oil price distortion on the current inflation print,” Cahyadi said.

The economist said the BSP would likely keep interest rates unchanged during the policy-rate setting meeting scheduled on May 12 despite rising inflation as well as weakening peso against the dollar.

“Expect no change in policy stance from the BSP as the central bank remains cautious on its approach going forward. The temptation to cut rates to facilitate a softer currency presumably exists but BSP is unlikely to deliver any move at this point,” Cahyadi said.

Cahyadi said the country’s gross domestic product (GDP) is expected to expand faster at six percent this year from 5.8 percent, giving monetary authorities more leeway to keep interest rates steady.

“In any case, BSP should be comfortable with growth momentum in the economy, as another six percent GDP growth still looks possible this year,” he said.

BSP Governor Amando Tetangco Jr. earlier said inflation in April would settle between 0.7 and 1.5 percent as the rebound in oil prices and the rise in utility rates particularly for power and water are putting upward pressure on inflation for April.

“Increase in domestic oil prices, as well as in power and water rates pose inflation pressures during the month,” he said.

Latest data from the Philippine Statistics Authority (PSA) showed inflation kicked up to 1.1 percent in March from 0.9 percent in February amid the slight uptick in food prices as well as higher pump prices of fuel products.

Inflation eased to 1.4 percent last year from 4.1 percent in 2014 due to stable food prices and cheaper utility rates.

On the other hand, the country’s gross domestic product (GDP) growth slowed down to 5.8 percent last year from 6.1 percent due to weak global demand and lack of government spending.

The benign inflation environment and robust domestic demand allowed the BSP to keep interest rates unchanged for 12 straight policy rate setting meetings.

The BSP has pegged the overnight borrowing rate at four percent, the overnight lending rate at six percent, and the special deposit account (SDA) rate at 2.5 percent since September 2014.