Inflation likely rose further in March to beyond the government’s target band, raising the possibility of a hike in key interest rates later this year, analysts polled by The Manila Times said.

Forecasts for the month ranged from 4.2-4.4 percent with a 4.2 percent average, higher than the 3.9 percent recorded in February and breaching the 2.0-4.0 percent target range.

The Bangko Sentral ng Pilipinas (BSP) expects a 3.8 percent to 4.6 percent result, citing higher power and fuel prices as well as the peso’s depreciation.

Official data for March will be released by the Philippine Statistics Authority on Thursday, April 5.

All five analysts polled said the year-ago rate of 3.1 percent would have been surpassed because of food, power and fuel price hikes.

“Headline inflation is expected to pick up further to 4.40 percent in March 2018 from February’s 3.90 percent level amid faster increases in the prices of petroleum products as well as food and non-alcoholic beverages,” Land Bank of the Philippines market economist Guian Angelo Dumalagan said.

He noted that costs of these goods had accelerated, fueled by higher excise taxes under the Tax Reform or Acceleration and Inclusion law and the depreciation of the peso, which made foreign goods and services more expensive in local currency terms.

With this, Dumalagan said a Bangko Sentral rate hike in May 2018 could be a prudent move as risks to inflation were clearly tilted to the upside even if higher excise taxes were discounted.

While price increases are likely to moderate in 2019, the magnitude of deceleration might be limited by factors likely to be more prolonged than transitory, he said.

“For example, oil prices are likely to recover further next year along with government spending, which is expected to accelerate. These factors could potentially keep inflation elevated, despite downward corrections from this year’s one-time hike in excise taxes,” the economist added.

There may also be a need to address the narrowing interest rate gap between the Philippines and the United States amid a gradual but steady increase in the US federal funds rate.

In the end, the decision to hike rates entails weighing these risks to inflation against the need to support economic growth with ample liquidity, Dumalagan said.

Security Bank Corp. economist and Assistant Vice-President Angelo Taningco also forecast an uptick to 4.3 percent given price increases in select food items such as rice, fish, fruits, vegetables; taxes on sweetened beverages and cigarettes; higher global oil prices; and power rate hikes.

“This potential acceleration in inflation will likely raise the chances of a modest monetary tightening this year, especially if the higher inflation comes alongside solid economic growth and depreciation pressures on the peso,” he said.

The lowest estimate of 4.2 percent came from Maybank Kim Eng, Australia’s ANZ Research and IHS Markit.

Suhaimi Ilias, regional head of economic research at Maybank Kim Eng, maintained his view that the central bank would raise interest rate by 50 basis points in total this year.

Meanwhile, ANZ Research said higher March inflation was likely driven by the effects of tax reform, higher domestic fuel costs, food prices and electricity charges.

“Core inflation should also have remained elevated owing to the strength of domestic demand,” it added.

IHS Markit Asia Pacific chief economist Rajiv Biswas said higher inflation pressures reflected the impact of the peso’s depreciation on import prices as well as higher electricity and fuel costs.

He noted that under both the old 2006 base year index and under the new 2012 data series, headline inflation was likely running above the upper end of the Bangko Sentral’s 2.0-4.0 target range.

“The BSP Monetary Board kept policy rates on hold at its March meeting on expectations that inflation pressures will ease in 2019,” Biswas noted.

“However, if inflation pressures stay above the upper end of the BSP target range in coming months while GDP (gross domestic product) growth momentum is also robust, the case for a rate hike at the May meeting will become more compelling,” he added.