Inflation ‘nearing peak,’ rate hike likely in Q3


Headline inflation in March matched the average 3.4 percent of a range of forecasts made earlier by analysts polled by The Manila Times, marking the highest in more than two years, which an analyst said may also be nearing the peak for 2017.

ANZ Research economist Eugenia Victorino expects inflation this year to settle in the upper half of the central bank’s 2 percent to 4 percent forecast range.

The focus is now on the extent of the upward trend in core inflation, which excludes energy and food prices.

“Though we believe that headline inflation may be close to peaking, core inflation is likely to continue rising given the strength in domestic demand,” ANZ Research economist Eugenia Victorino said.

She said core inflation, which has been continuously increasing over the last 12 months, is however, unlikely to see any let-up.

“Above-trend growth in household spending, coupled with the government’s renewed push to deliver infrastructure projects, imply a continuation of strong domestic demand and upward price pressures, by implication,” she added.

Victorino, thus, expects starting the third quarter of 2017, the central bank will raise its policy rate by a cumulative 50 basis points (bps) this year.

“Accordingly, we reiterate our view that the BSP will commence its tightening cycle in Q3 and raise its policy rate by a cumulative 50 bps in 2017 and 75 bps in 2018,” she said.

Earlier, ING Bank Manila senior economist Joey Cuyegkeng said he expected inflation to average 3.4 percent this year and 3.3 percent in 2018.

Standard Chartered Bank economist Chidu Narayanan had also said the average inflation rate this year would be higher than the 1.8 percent recorded in 2016, but did not think the increase would “be significant enough to cause the BSP to hike rates this year.”



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