Analysts expect May inflation at 3.1%-3.5%

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A panel of private Philippine bank analysts estimated that headline inflation likely moderated to an average of 3.3 percent in May from 3.4 percent in April, given slower increases in food and fuel prices during the fifth month of the year.

The actual forecasts by seven analysts polled by The Manila Times for May showed a wide range of 3.1 percent to 3.5 percent.

But the range of estimates given by the Bangko Sentral ng Pilipinas (BSP) earlier for May was even wider at 2.9 percent to 3.7 percent. The Department of Finance (DoF) has been more specific with its inflation forecast of 3.2 percent for the fifth month, based on slower increases in food prices.

Both the government and private analysts expect this year’s May inflation to stay far above the year-earlier comparative rate of 1.6 percent, as the rise in consumer prices this year so far had consistently been faster than last year.


For full-year 2017, the BSP had set a target limit of 2 percent to 4 percent inflation rate.

The Philippine Statistics Authority is expected to release the May 2017 inflation report on Tuesday, June 6.

Policy tweak
The analysts differed on their expectations of the BSP action on its policy settings.

Although ING Bank estimates inflation in May to have gone up to 3.5 percent from 3.4 percent in April due to what it saw as higher energy and selected food prices and a weaker peso, the Dutch financial institution does not expect any change to the BSP policy settings soon.

“Unlikely to affect policy settings at the June 22 [Monetary Board] meeting – no change in [the BSP]policy settings,” said ING Bank Manila senior economist Joey Cuyegkeng.

“Inflation is likely to remain within the 2-percent to 4-percent average inflation target range,” he said, before giving a specific estimate of 3.5 percent.

Land Bank of the Philippines and Ateneo de Manila University (AdMU) analysts see inflation staying at 3.4 percent for May, steady from April and March, as they observed a slower increase in oil prices, likely offsetting the impact of the peso’s continued depreciation.

“The stable rise in consumer prices might give the BSP room to keep its policy rates steady in June 2017, even as the US Federal Reserve might again tighten its monetary policy settings in the same month,” said LandBank market economist Guian Angelo Dumalagan.

Nevertheless, he said the BSP remains on track to hiking policy rates by at least 25 basis points this year, as inflation might accelerate in the third quarter amid expectations of higher oil prices and a weaker peso.

“The BSP might also adjust policy rates in order to temper the impact of the US central bank’s interest rate normalization,” Dumalagan added.

AdMU economist Alvin Ang did not elaborate on his 3.4 percent inflation forecast.

IHS Markit and Metrobank Research both believe inflation must have hit 3.3 percent in May, slowing from April’s 3.4 percent.

Rajiv Biswas, Asia-Pacific chief economist at IHS Markit, said inflation pressures are expected to have eased slightly in May, after having risen significantly during the fourth quarter of 2016 and the first quarter of 2017.

“With world oil prices edging lower in May, retail petrol prices have stabilized, while food inflation has also moderated. The headline CPI [consumer price index]inflation rate for May is forecast to edge lower to 3.3 percent year-on-year, slightly below the 3.4 percent pace of inflation in April,” he said.

Biswas projected that in the medium term, or during the second half of 2017, inflationary pressures will stabilize, remaining within the BSP’s target CPI inflation range of 2 percent to 4 percent during the rest of the year.

This is based on IHS expectations that world oil prices will average about $55 for Brent crude during 2017, with high global oil inventories and increasing US oil production constraining the oil price, he said.

However, Biswas warned that what could be a key risk to the Philippine inflation outlook would be if world oil prices moved sharply higher during the remainder of 2017 due to unexpected supply disruptions. That could trigger a more significant upturn in headline inflation, he said.

“Although headline CPI inflation moved sharply higher at the beginning of 2017, it has since stabilized and remains within the BSP’s target range for inflation of between 2 percent and 4 percent. [But] although CPI inflation pressures have stabilized during recent months, headline CPI inflation is still in the upper end of the BSP’s target range and domestic economic growth momentum is expected to remain strong during 2017,” he explained.

Consequently, the BSP’s monetary policy stance is expected have a tightening bias, Biswas said, adding, “While the US Fed is expected to hike rates two more times in 2017, the BSP’s own monetary policy decision will focus on domestic inflation and GDP [gross domestic product]growth momentum in the Philippines, rather than the US Fed policy moves.”

Metrobank Research analyst Pauline May Ann Revillas forecasts May inflation at 3.3 percent amid high petroleum product prices and mixed movements in food prices.

“We do not see a change in the BSP policy settings just yet,” she added.

2 BSP rate hikes expected
Banking giants DBS and Deutsche Bank provided the lowest estimate of 3.1 percent for May inflation.

However, DBS economist Gundy Cahyadi said the bank continues to see upward risks to inflation going forward.

“While GDP growth in first-quarter 2017 was slightly disappointing [at 6.4 percent], the underlying growth drivers remain strong, which is also evident in the core inflation reading. The passage of the tax reform bill may also have implication on the outlook for inflation next year,” he said.

With this, he said, DBS continues to expect two rate hikes from the central bank before the year-end, noting that the BSP appears to be slightly behind the curve in normalizing its policy rate.

Deutsche Bank Economist Diana del Rosario said she based her estimates on slower increases in food prices, electricity rates, and transport fares relative to their year-ago levels.

“With this downtrend in inflation, the BSP may be able to delay the 25 bps rate hike that we expect for August. But we still think the odds of a rate hike(s) remain on the table in the second half to guard against the likely inflationary impact of the tax reform, which may be implemented early next year,” she said.

Details of DoF’s May estimates
The BSP has factored into its inflation projections the pressures from a series of rollbacks in fuel pump prices, as well as the downward adjustment in power rates.

The DoF, meanwhile, said its forecast may be traced to the easing in food prices, primarily of vegetables, which are forecast to drop to 4.7 percent from 8.1 percent.

This will cut down food inflation from 4.2 percent to 3.8 percent, it added.

The DoF also expects that index heavyweights food and non-alcoholic beverages are expected to drop to 3.8 percent in May from 4.2 percent the preceding month, along with prices of alcoholic beverages and tobacco to 6.2 percent from 6.3 percent.

Also, prices of clothing and footwear may drop to 2.3 percent in May from 2.7 percent in April; furnishings, household equipment to 2.3 percent from 2.4 percent; and recreation and culture to 1.4 percent from 1.5 percent, according to a DoF report released earlier.

Prices of health services could also lose pace to 2.4 percent from 2.5 percent; transport to 2.9 percent from 3.2 percent, and communication to 0.2 percent from 0.3 percent.

Housing, utilities and fuel prices, however, are expected to rise slightly from 3.6 percent in April to 3.7 percent in May, but the sub-segment electricity, gas and other fuels may drop to 8.2 percent from 8.5 percent in the preceding month.

Education will show a steady rise at 1.8 percent.

The DoF said that in the first four weeks of May, Manila Electric Co.’s (Meralco) rate per kilowatthour (kWh) for an average of 200 kilowatts-per-month consumption dipped to P9.6 from P9.9 in April, but stood higher than P8.4 a year earlier.

Meralco’s generation rate per kWh also fell to P4.9 during the month from P5.1 in April, but rose from P3.9 the previous year, it said.

The average price of diesel in Metro Manila among the “big three” oil companies dropped to P30.8 per liter from P31.4 the month earlier, but rose from P26.4 a year earlier, the DoF Economic Bulletin said.

Meanwhile, the average price of gasoline in the first four weeks of May increased to P45.3 per liter from P45.1 in April and P40.4 in May of last year.

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