‘Inflation back on target in Q4’

MANILA, Philippines — Inflation is expected to continue its downward trajectory, returning to the government’s target band of at least four percent by the fourth quarter of the year.

In a recent commentary, Manulife Investment Management and Trust Corp., a subsidiary of insurance firm Manulife, said inflation in the country has already peaked and would likely remain in an easing mode in the months ahead.

This supports the Bangko Sentral ng Pilipinas (BSP)’s view that inflation eased further in May and settled within 5.8 to 6.6 percent.

“We can expect negative base effects in the coming months to significantly result in slower inflation data, in line with the BSP inflation forecast for May,” Manulife head of fixed income Jean de Castro said.

“Looking ahead to the fourth quarter, local inflation can be expected to fall within the BSP’s two to four percent target range barring any sharp increases in global oil prices,” she said.

Inflation has been easing for the past three months, hitting an eight-month low of 6.6 percent in April.

For the four-month period, inflation averaged 7.9 percent. This is still above the five to seven percent full-year assumption of the Cabinet-level Development Budget Coordination Committee.

The BSP, on the other hand, is looking at inflation falling within the two to four percent target band as early as September or October.

De Castro also noted that the moderating inflation environment, coupled with the pause in monetary policy action, supports the positive local bond outlook for the second half of the year.

Manulife head of equities Mark Canizares, for his part, emphasized that easing inflation should be able to provide support to local share prices as the second semester comes in.

Canizares said rate-sensitive sectors, such as residential property, would likely benefit from this tailwind.

“Domestic consumption, which benefitted as the country reopened, will likely get some support as well from easing prices, as raw material and other input costs moderate,” Canizares said.

“Should the trend of deceleration continue in the second half, the local market’s focus will likely shift to when interest rates will peak, and eventually decline. Lower rates historically help drive a rally in equity markets,” he said.