CONSUMER prices in the Philippines marked the highest increase in 13 months as it climbed to 1.6 percent in May from 1.1 percent the previous month.
The increase occurred in a wide range of sectors. They included food items, including alcoholic and non-alcoholic beverages, clothing and footwear, tobacco, furnishing, household equipment and routine maintenance of the house, health products, transport and communication, recreation and culture, and restaurant and miscellaneous goods and services.
Core inflation, which excludes more volatile food and energy prices, also rose to 1.6 percent from 1.5 percent in April. Core inflation stood at 2.2 percent in May 2015.
According to figures the Philippine Statistics Authority (PSA) released on Tuesday the inflation rate in May was higher than the 1.4 percent the Department of Finance had forecast and the highest on record since April 2015 April’s 2.2 percent. Nonetheless, it was within the 1.1 to 1.9 percent range the Bangko Sentral ng Pilipinas (BSP) has estimated for the month and at the higher end of the 1.3 to 1.7 percent range analysts polled by The Manila Times projected.
Analysts also think that full-year inflation rate may remain in the lower end of the central bank’s target range.
Inflation for the first five months of 2016 averaged 1.3 percent, below the BSP’s 2 to 4 percent target for the year.
Supports demand prospects
The National Economic and Development Authority (NEDA) said the increase in inflation could be attributed to higher demand because of election spending and partly to supply constraints in agriculture because of the residual effects of the weakening El Niño.
“The manageable inflation rate for the first five months of 2016 is expected to continue for the rest of the year as the productive capacity of the domestic economy expands and oil prices remain low,” said Socioeconomic Planning Secretary Emmanuel Esguerra who is also NEDA’s director general.
“The stability in inflation rate will create a positive environment for investments and ensure affordability of basic commodities for the poor,” added Esguerra.
With this, Esguerra said, full-year inflation for 2016 is expected to be close to the lower bound of the inflation target set at 2 percent to 4 percent by the Development Budget Coordination Committee.
The NEDA chief also said that prices of commodities in the food subgroup rose to 2.3 percent in May 2016. Rice prices inched up 0.1 percent month-on-month for the first time in eight months but remain lower than the previous year.
“The timely importation of rice to offset domestic production losses due to El Niño mitigated the possible skyrocketing of rice prices,” he said.
Inflation in the non-food group inched up also by 0.1 percent. This is despite an increase in all subgroups except for education, which remained stable at 3.6 percent.
At the same time, oil prices surged, particularly for gasoline (up 4.83 percent); liquefied petroleum gas (up 3.21 percent); diesel (up 15.07 percent), and kerosene (up 7.61 percent).
This, said Esguerra was “ due to cutbacks in the production and exploration of international energy firms.”
To hit lower end of target
Analysts at Fitch-owned think tank BMI Research do not expect inflation to rise significantly over the remaining period of the year.
“As such, we forecast headline CPI [consumer price index]to average two percent in 2016,” BMI said.
Meanwhile, a Bank of the Philippine Islands (BPI) analyst said the below target print in May is tied to the protracted energy slump, which continues to feed into the rest of the CPI basket, most notably in utilities and liquefied petroleum gas prices.
“Inflation should trend back into target, bringing FY [fiscal year]inflation right at the lower end of the two percent to four percent target,” said BPI associate economist Nicholas Antonio Mapa.
Going forward, Mapa said the BSP is expected to stand pat at its next Monetary Board meeting, as inflation remains subdued while domestic activity remains upbeat.
“BSP will also look to wield the full weight of its newly minted interest rate corridor system to smooth out any volatility that may ensue should Janet Yellen indeed will pull the trigger on the next Fed hike sometime within the year,” he said.
BSP sees no need to tweak rates
The central bank sees no urgency to tweak its key policy rates. BSP Governor Amando Tetengco Jr. said the May inflation rate is consistent with the central bank’s assessment that inflation will slowly rise but remain within the range of 2-4 percent.
“We will continue to monitor external developments, including next Fed moves, and domestic developments such as changes in pump prices and utility rates, to see if there is any need to adjust policy stance,” he said in a text message to reporters.
In a related development, Tetangco said the United States Federal Reserve latest decision to push back rate hike “reflects what some analysts call cautious optimism.”
The BSP Governor also viewed the Fed’s positive outlook on the US economy as “good” for the global economy especially for trading partners like the Philippines.
“While our view is that our current stance of monetary policy remains appropriate, we should, nevertheless use this breather from the Fed to further consolidate own domestic sources of resilience so we can take advantage of external developments,” he said.
NEDA’s Esguerra stressed that the government must remain vigilant in mitigating the enduring effects of El Niño while preparing for the likely occurrence of La Niña in the second half of the year.
He said that the government must accelerate the implementation of the Roadmap for Addressing the Impact of El Niño, especially in areas that have declared a state of calamity.
“In addition, it must stay alert and prepared for disasters that could ensue with the occurrence of La Niña,” said Esguerra.