MANILA, Philippines — Inflation likely breached the government’s two to four percent target range, which may finally prompt the Bangko Sentral ng Pilipinas (BSP) to hike interest rates and join other centralbanks in the tightening cycle as early as May, according to economists.
ING Bank Manila senior economist Nicholas Mapa said inflation in April likely quickened to 4.8 percent from a six-month high of four percent in March due to upward pressure delivered by surging transport costs and expensive utilities.
Mapa said food inflation may trend higher as well, especially for cereal items.
According to Mapa, second round effects may also be creeping in as higher transport costs feed through to the rest of the consumer price index (CPI) basket.
“The inflation reading, alongside a robust first quarter gross domestic product report could be enough to convince BSP Governor (Benjamin) Diokno to push forward with his rate hike by May or more likely by June,” Mapa said.
Security Bank chief economist Robert Dan Roces said that last month’s inflation likely accelerated to 4.7 percent, with a range of 4.4 to 4.8 percent.
Roces said the food basket may have contributed approximately 1.4 percent to the headline inflation reading in April, while utilities gave 1.5 percent and transportation one percent.
These estimates, Roces explained, show that inflation remains mostly cost-push driven, and now fully reflects the effects of the Russia-Ukraine conflict on prices.
“With spiking prices a global challenge, there is a higher chance that the BSP may act soon lest it increases the risk of falling behind the curve relative to the US Fed’s and other major central banks’ policy adjustments to rein in inflation,” Roces said.
Security Bank expects inflation to peak in the second quarter and ease above the four percent level for the rest of the year.
The listed bank also sees the BSP delivering rate hikes totalling 75 basis points starting in June, with an increase of 25 basis points.
“Policy adjustments by the central bank this year are seen to remain accommodative in the sense that it will still be far from the pre-pandemic rate of four percent, yet enough to cover the differential versus the FOMC’s rate, remain supportive of credit recovery for productive purposes, and help rein in local inflation as a preemptive measure for upside risks in the second half and beyond,” Roces said.
Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said inflation last month likely rose to 4.6 percent and could still pick up due to the damage caused by typhoon Agaton that could temporarily lead to higher prices of food and other basic commodities.
Ricafort also cited other upward price pressures arising from the continued effects of Russia-Ukraine conflict for more than two months already as well as the global economic recovery disruptions in some parts of the global supply chains aggravated by COVID lockdowns in China.
“For the coming months, risk of second-round inflation effects would be monitored, especially if there would be any upward adjustment on wages and transport fares, as these could trigger higher prices of other affected products and services in the economy, thereby could eventually prompt some increase in policy rates,” Ricafort said.
Citi economist for the Philippines Nalin Chutchotitham sees inflation climbing to 4.4 percent in April as higher food prices and electricity costs offset some easing of crude oil prices.
“Inflation might stay above four percent over the next few months, following lower base. We see further upside risks to our annual forecast, should food prices pick up further,” Chutchotitham said.
Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines, said inflation remained elevated at 4.3 percent in April, breaching the BSP’s two to four percent target.
“We think that despite oil prices sliding back to the range of $100 per barrel towards end-April, we continue to expect inflation to rise higher,” Roces said.
He said that upward prices pressures include the direct effects of a weaker peso and elevated oil prices that comprise CPI transport and higher CPI electricity.
Roces said pass-through effects or second round effects of higher oil prices rushing through the non-oil basket consisting of food and services that gained pace this April as well as the support for faster pass-through effects in an improving backdrop coming from the domestic economy’s reopening since the second half of last year.
“We have seen the spillover of the consumption demand momentum especially from fourth quarter of 2021 through first quarter of 2022,” Roces said.
The BSP earlier said inflation last month quickened to a range of 4.2 to five percent.