Analysts expect higher May inflation

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Higher oil and food prices likely pushed the country’s inflation rate up to a range of 1.3 percent to 1.7 percent in May from 1.1 percent in April, analysts polled by The Manila Times said.

Official May data will be released today (Tuesday). Inflation the same month a year ago settled at 1.6 percent.

The Bangko Sentral ng Pilipinas (BSP) last week offered an estimate of between 1.1 percent and 1.9 percent for inflation in May, while the Department of Finance (DOF) projected 1.4 percent.

The BSP noted that higher domestic oil prices and the uptick in food prices suggested potential upside inflation pressures, which could be partly offset by lower power rates in Manila Electric Co.-serviced areas.


The DOF pointed out that an uptick in the inflation rate may be attributed to an increase in food prices, particularly vegetables.

Two of the 11 analysts polled offered the highest estimate of 1.7 percent. They were from US-based think tank IHS and Deutsche Bank.

Rajiv Biswas, IHS Asia-Pacific chief economist, attributed his estimate to higher oil prices and some impact of the El Niño drought effect on food prices, as well as base year effects of very low inflation a year ago, when oil prices were slumping.

The economist explained that world oil prices have strengthened from their January low point, when the price of Brent crude fell to $29 per barrel, and have since risen to $50 as of the end of May.

“If world oil prices remain at this level, this will gradually feed into higher retail petrol prices in coming months. With several further increases in domestic retail petrol prices implemented during May, total year-to-date adjustments have already risen by P3.37/liter for gasoline and P5.18/liter for diesel,” he said.

Food prices a factor
Biswas added that another factor that could also contribute to some increase in near-term inflation figures is the impact of the El Niño weather effect, which has caused a drought and hit agricultural production in the Philippines during the first half of 2016.

“Food prices account for a 39 percent weight in the total Philippines CPI [consumer price index], so fluctuations in food prices due to weak agricultural production can have a significant impact on the overall headline CPI index,” he said.

Deutsche Bank economist Diana del Rosario, expects inflation to have gained pace on the back of higher crude oil prices.

Forecasting a 1.5 percent rate in May were analysts from Bank of the Philippine Islands (BPI) and banking giant HSBC.

Nicholas Antonio Mapa, BPI associate economist, noted that power rates and transportation continue to show deflation in price trends, dragging the overall print lower year-on-year as oil prices remain relatively depressed.

“Offsetting this disinflationary trend, food prices were higher 2.2 percent year-on-year as vegetables and fruits drove the overall basket higher (on El Niño) while rice prices only saw marginal inflationary trends given ample importation of the staple grains,” he said.

Joseph Incalcaterra, Asia-Pacific economist for HSBC, said his forecast was because of higher energy prices, in particular crude oil, which has impacted retail prices.

“We also forecast a sequential acceleration in food prices stemming from the decline in domestic agriculture production,” he also noted.

Meanwhile, five analysts shared the same forecast of 1.4 percent. They were from Metropolitan Bank and Trust Co. (Metrobank), Moody’s Analytics, ANZ Research, Standard Chartered Bank, and United Kingdom-based investment bank Barclays.

Mabellene Reynaldo, analyst at Metrobank Research, said the May inflation rate may likely be the highest so far this year, on the back of rising food and oil prices along with a lower base.

“Oil prices found some support in the middle of the month given reports of lower supply: production outages in Nigeria and Canada, lower US stockpiles, and a report from the International Energy Agency (IEA) that the global oil market surplus may be lower by the end of the year,” she said.

Reynaldo further explained that crude oil prices briefly breached the $50/barrel mark towards the end of the month, while food prices continue to trend higher because of limited supply and strong domestic demand.

Jack Chambers, associate economist at Moody’s Analytics, said, “the uptick in inflation reflects the rebound in oil prices which will translate to higher energy and transportation costs.”

Eugenia Victorino, ANZ Research economist, said pump oil prices continued to rise, however, this should have been partially offset by the decline in electricity prices.

Jeff Ng, StanChart economist, said energy prices have been creeping up, exerting upside pressure on energy inflation in the Philippines.

“Food prices have remained stable, but the upside risks are rising,” he added.
Rahul Bajoria of Barclays, however, did not provide explanation for his 1.4 percent forecast.

Providing the lowest estimate of 1.3 percent were analysts from Singapore-based bank DBS and Dutch financial giant ING Bank.

Gundy Cahyadi, DBS economist, also did not explain his estimates.

Joey Cuyegkeng, ING Bank Manila se nior economist, noted some upside pressures because of El Niño and increase in oil product prices.

 

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