Philippine annual inflation on track for government target as food prices ease

Philippine yearly inflation is predicted to remain within the government’s 2% to 4% target range in Q4, following a decrease in April due to reduced food prices. The consumer price index increased by 6.6% YoY in April, the lowest rate since August, and lower than the 7.0% predicted in a Reuters poll. As a result, the Bangko Sentral ng Pilipinas (BSP) may decide to delay interest rate hikes at its meeting on May 18, analysts said. The BSP has increased interest rates by 425 basis points to 6.25% since last May to combat inflation.

“We are on track to managing inflation to within target sometime in the fourth quarter, if not sooner,” said Finance Secretary Benjamin Diokno in a statement, as April’s slower inflation rate strengthens the case for the Bangko Sentral ng Pilipinas (BSP) to pause interest rate hikes at its May 18 meeting. Analysts highlighted that the US Federal Reserve has already raised its rates by 25 basis points this week. ING economist Nicholas Mapa commented, “Today’s report increases the chances for a pause from the BSP on May 18.”

To address inflation, the BSP has increased interest rates by 425 basis points to 6.25% since May of last year. However, Robert Dan Roces, Chief Economist at Security Bank, anticipates that the central bank will maintain rates this month, although he added that the BSP would likely require more data before concluding its hiking cycle.

Core inflation, excluding volatile food and fuel items, decreased slightly to 7.9% from March’s 8.0%. The BSP, which projected April inflation at 6.3% to 7.1%, stated last month that it might halt its 10-month tightening cycle if inflation slowed further in April. On Friday, the BSP confirmed its “commitment to adjusting the monetary policy stance as necessary to prevent the further broadening of price pressures as well as the emergence of additional second-order effects.”

However, the economic planning agency warned that upside risks to inflation persist, given the potential for an El Nino weather pattern and the resurgence of African swine flu.