Inflation likely picked up in May

MANILA, Philippines — Economists expect a slight uptick in May inflation which may prompt the Bangko Sentral ng Pilipinas (BSP) to hold off additional interest rate cuts within the second quarter.

Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines, said inflation may settle at 2.4 percent in May from 2.2 percent in April due to upward pressure from rice and petroleum prices.

“The May inflation view may mean that the BSP may have to hold off additional monetary policy rate cuts in the second quarter as inflationary pressures lingers on amid the COVID-19 pandemic,” Asuncion said.

Asuncion said despite the soft global oil prices, domestic pump prices have slightly gone up following the imposition of an additional 10 percent tariff on imported crude oil and refined petroleum products.

Another driver of a potential inflation uptick in May, Asuncion said, is the continuing increase in rice prices.

For the whole of 2020, the Aboitiz-led bank expects inflation to settle at 2.8 percent from 2.5 percent in 2019.

Security Bank chief economist Robert Dan Roces also see a slight uptick in May inflation at 2.3 percent as the consumer price index is expected to remained subdued at the two percent levels on still relatively low oil prices and reduced demand for most non-essential goods.

“For the month (May), rising prices in the food basket were observed, while pump prices have gone up in the last week as market activities slowly emerge from hibernation with the easing of quarantine measures in some parts of the country,” Roces said.

Michael Ricafort, chief economist at Yuchengco-led Rizal Commercial Banking Corp., said inflation likely settled at 2.2 percent, but the reopening of the local economy from lockdowns could fundamentally lead to some pickup in economic activity as well as demand and prices for some products and services.

Ricafort said easing of lockdowns could also somewhat help ease constraints in logistics and disruptions in supply chains which could also help ease prices of some products especially food and other basic necessities.

Ricafort said a deeper gross domestic product (GDP) contraction in the second quarter amid the possibility of a recession could still mitigate inflationary pressures and still prompt further monetary easing with an interest rate cut of another 25 basis points and another 200 basis points reduction in the RRR in the coming weeks or months.