Inflation uptick temporary, won’t stall further rate cuts
Czeriza Valencia (The Philippine Star) - June 7, 2019 - 12:00am

MANILA, Philippines — The unexpected uptick in inflation last month is temporary and unlikely to prevent further cuts in interest rates, London-based think tank Capital Economics said yesterday.

In a research brief, the firm said the faster growth in consumer prices in May is largely due to a base effect from last year which is expected to correct in the succeeding months.

Inflation growth picked up pace in May to 3.2 percent from three percent in April, interrupting a six-month deceleration as prices of food, housing, utilities and fuels rose.

Slower growth, meanwhile, was seen in the indices of alcoholic beverages and tobacco, transport, as well as in restaurant and miscellaneous goods and services.

This brought the year-to-date average to 3.6 percent, still within the government’s full-year inflation target of two to four percent.

“The unexpected uptick in inflation in May mainly reflected temporary factors and is unlikely to preclude further rate cuts from the central bank. We are sticking with our forecast for two more cuts in 2019,” Capital Economics said.

“We doubt the pickup in food price inflation will continue. For one thing, the pickup was mainly due to base effects from the falls in fish and vegetable prices in May of last year, which will disappear next month. Encouragingly, rice prices continued to decline, and should carry on doing so as the boost to supply from import liberalization feeds through further,” it added.

The slower growth in transport prices is also expected to continue alongside expectations that global oil prices continue to moderate.

“Another encouraging sign was that transport price inflation dropped back having risen in recent months. Our forecasts for Brent crude to end 2019 at $60 per barrel imply that this will continue,” Capital Economics said.

It noted that even if the decline in food and fuel prices were to stall for the rest of the year, the continued base effect from last year will still result in slower growth year-on-year.

“The large spikes in both price categories last year mean that year-on-year inflation is likely to turn negative in the second half of 2019. Overall, we still expect headline inflation to average just 1.7 percent year-on-year over the remaining months of the year, which would be below the central bank’s two to four percent target range,” Capital Economics said.

As the May uptick is expected to be transitory, the firm expects the Bangko Sentral ng Pilipinas to cut rates by 25 basis points in its next meeting this month, with another cut in the offing in the second half of the year.

It also maintained expectations of another round of cuts in banks’ reserve requirement ratio before the end of the year to 14 percent.

  • Latest
  • Trending
Are you sure you want to log out?
Login is one of the most vibrant, opinionated, discerning communities of readers on cyberspace. With your meaningful insights, help shape the stories that can shape the country. Sign up now!

or sign in with