April inflation seen above 7%

MANILA, Philippines — Inflation likely stayed above seven percent in April, way above the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP), according to economists.

ANZ Research chief economist Sanjay Mathur, economist Debalika Sarkar, and senior strategist Irene Cheung said inflation last month further eased to 7.3 percent from a six-month low of 7.6 percent in March.

The authors said the BSP has already signaled a possible pause of its tightening cycle if the inflation print shows a continued downtrend.

“Although this suggests that the central bank may indeed take a pause, renewed pressure on the peso in the past week may have made the decision-making a more complex process,” they said.

Inflation averaged 8.3 percent in the first quarter after easing gradually to 7.6 percent in March from a 14-year high of 8.7 percent last January.

“We expect inflation outlook to gradually moderate from here on. Base effects will play a crucial role in the coming months to push inflation towards the BSP’s official two to four percent target range,” the authors said.

However, ANZ Research cautioned that upside risks to food prices are still present.

“Food supply issues have not fully abated and weather disruptions may aggravate price pressures. We will also need to monitor if there will be any drier-than-usual weather conditions due to an El Niño event and their impact on food prices over the second half of the year,” they said.

After strengthening to the 53 to $1 handle last February, the peso weakened back to the 56 to $1 range late last month on possible more rate hikes from the US Federal Reserve and the planned pause by the BSP of its monetary tightening cycle.

The peso slumped to an all-time low of 59 to $1 in October last year, but rebounded strongly due to the aggressive rate hikes and the active intervention of the BSP in the foreign exchange market.

Since May last year, the BSP Monetary Board has raised key policy rates by 425 basis points to fight inflation and stabilize the peso, making it the most aggressive central bank in the region.

This brought the overnight reverse repurchase rate to a 16-year high of 6.25 percent from an all-time low of two percent.

“Considering all factors, our base case is for a final 25-basis-point hike in May to a terminal rate of 6.50 percent,” ANZ Research said.

ANZ Research is not foreseeing any rate cuts this year  even if inflation stays below four percent by the end of the year, and the earliest rate reduction is likely to happen in March next year with 25 basis points.

Likewise, Moody’s Analytics also expects inflation to have eased to 7.3 percent last month from 7.6 percent in March.