Inflation likely nears peak level

MANILA, Philippines — The country’s headline inflation is seen nearing its peak after jumping to its highest level in over three years as global commodity prices remain elevated.

In its latest economic monitor, international think tank Pantheon Macroeconomics said fuel disinflation would likely be the saving grace to prevent further acceleration in the headline rate.

“Fortunately for the Bangko Sentral ng Pilipinas, headline inflation probably is near its peak, as transport price disinflation will likely take hold from this month,” Pantheon chief Emerging Asia economist Miguel Chanco said.

Inflation zoomed to 4.9 percent in April, beating market expectations and settling at the upper end of the central bank’s target for the month.

This was largely driven by food inflation at 3.8 percent, which is now catching up quickly to the still-elevated gains globally.

Given the situation, Chanco said food inflation can rise easily to over five percent in the months ahead.

On the other hand, he noted that the increase in transport inflation to 13 percent was a massive overshoot when mapped against the rise in crude oil prices.

“Oil prices will likely remain sticky for the rest of the year, but the year-over-year change still is destined for a slowdown,” Chanco said.

Nonetheless, the think tank raised its full year inflation forecast to 4.3 percent from its earlier 3.9 percent projection.

This is higher than the 2021 inflation print of 3.9 percent but is the same as BSP’s assumption for the year.

Still, Chanco argued that the higher inflation rate is not a guarantee of impending rate hikes, especially as the BSP believes inflation will return to the target band next year.

“This won’t be enough to swing the BSP to start normalizing policy anytime soon, as the bank cares more about the medium-term picture,” he said.

Last week, BSP Governor Benjamin Diokno hinted of a possible increase in policy rate by June.

The BSP has been keeping the benchmark interest rate at an all-time low of two percent for the past 17 months or since November 2020, when it delivered the last 25 basis points rate cut.