Inflation probably exceeded 5% in May

HEADLINE inflation likely accelerated further in May due to higher food and commodity prices, economists polled by the Manila Times said.

Projections for the month ranged from 5.2 to 5.4% with an average of 5.4%, faster than the three-year high of 4.9% in April. Inflation in May last year was 4.1%.

The Bangko Sentral ng Pilipinas (BSP) earlier predicted inflation would hit 5.0-5.8%.

Official inflation data for May will be released by the Philippine Statistics Authority (PSA) on June 7. Economists from Rizal Commercial Banking Corp. (RCBC), Security Bank Corp. (SBC) and ANZ Research expect inflation to hit 5.4%.

RCBC Chief Economist Michael Ricafort said inflation is likely to have accelerated further due to the recent increase in global oil prices due to the Russian-Ukrainian war.

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“Russia’s war with Ukraine since February 24, 2022 has led to higher inflationary pressures caused by rising world prices for oil, grain, wheat, flour, other food products, minerals and other global products, especially those supplied by Russia and Ukraine to the rest of the world,” Ricafort said.

Diesel prices have increased to 4.20 pula per litre.

Ricafort believes that global supply chain disruptions could be compounded by the Russian-Ukrainian war with additional disruptions caused by lockdowns in China.

He added that the weaker exchange rate of the peso against the US dollar could also have increased import costs and headline inflation. The Philippine peso remained weak throughout May, hitting a low of 52.50 pesos to the dollar in the first week.

Ricafort said that aside from these, the main driver of inflation will be higher minimum wages.

The Regional Tripartite Wage and Productivity Boards (RTWPB) in the National Capital Region (NCR) previously granted a pay rise of 33P, bringing the new minimum wage rate to 570P and 533P for workers non-agricultural and agricultural sectors, respectively. Wage increases in Central and Western Visayas were also approved.

“Sources of second-round inflation effects include higher wages, possible increases in transport fares which could lead to higher prices for other affected goods and services in the economy,” Ricafort said.

In a report, SBC Chief Economist Robert Dan Roces said rising food prices may have contributed around 1.8% to headline inflation as Upside risks from the heavily weighted basket are starting to emerge, while utilities may have contributed 1.5%. and transportation 1.3 percent. “Current estimates show that inflation remains mostly driven by cost pressures and could peak this quarter before declining to high levels above 4% for the rest of the year,” Roces said.

Roces said that given upside risks to local inflation, policy adjustments by the U.S. Fed and other major central banks, and the depreciation of the peso, the central bank should raise policy rates by An additional 25 basis points on June 23 and 50 basis points more in the second half, bringing the end-of-year key rate to 3.0%, which is also in line with US Fed rate hikes.

ANZ Research, meanwhile, the rise in inflation during the month could be due to the recovery in demand, disruptions in food supply and rising fuel prices. He noted, however, that a reduction in electricity tariffs in May by Meralco and a drop in LPG prices likely provided some relief to local households.

Meralco reduced the average household’s bill per kilowatt hour by P0.12. Oil companies reduced the price of LPG from 5.73 pesos kilogram (kg) to 5.75 pesos per kg, or about 63.03 pesos to 63.29 pesos per 11 kg bottle. The price of automotive LPG has also been reduced by 3.22 pula per litre. “Overall, inflationary pressures will remain a key challenge for the Philippine economy throughout 2022,” ANZ Research said.

Regina Capital Development Corp. chief executive Luis Limlingan said inflation likely hit 5.2% in May. “Our forecast is for inflation to rise to 5.2% due to higher food and commodity prices, especially oil,” he said.

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