Poll bares expectation of slower inflation

INFLATION likely eased in May on the back of lower food and fuel prices, according to analysts asked in a BusinessWorld poll late last week who added this should enable the central bank to keep borrowing rates steady.

A poll among 10 economists yielded an estimate median of 3.3% for May, a tad slower than April’s 3.4%. This also falls within the 2.9- 3.7% range given by Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco, Jr. and will soar from May 2016’s 1.6%.

The Philippine Statistics Authority will report official inflation data on Tuesday. So far, the pace of overall price increases averaged 3.2% in the first four months of the year, within the central bank’s 2-4% target range and below its 3.4% forecast for the entire 2017.

“May 2017 inflation rate may have settled at 3.3% with general food prices and electricity rates easing. But, it must also be noted that the price of rice, a basic good for Filipino households, is expected to have risen this May,” Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, said in an e-mail.

Rajiv Biswas, Asia-Pacific chief economist at IHS Markit, added that price movements may have eased following faster increases over the past six months. He added that inflationary pressures will likely “stabilize” next semester within the central bank’s 2- 4% target band.

Mr. Tetangco had said previously that inflation will likely peak in the third quarter, before trending lower in the last three months of the year.

With the inflation rate well within target, several analysts expect the BSP to keep monetary policy stance unchanged in the June 22 meeting of its Monetary Board, with some noting even slimmer chances that the central bank will raise rates later this year.

“With an inflation moderation in May and if this trend of inflation remaining manageable is sustained in the upcoming months, then I think the chances of a rate hike in the second half of the year are now lower,” said Angelo B. Taningco, economist at Security Bank Corp.

Some analysts see the BSP holding fire despite some expectations that the United States Federal Reserve could introduce a fresh rate hike at the June 1314 meeting of its Federal Open Market Committee (FOMC).

“For now, there has been some doubts as well on how much more will the Fed hike rates this year, which also might lessen expectations of local rate hikes given the benign inflation environment,” added Ildemarc C. Bautista, assistant vice-president and head of research at Metropolitan Bank & Trust Co.

Reuters said there is an 87% chance of a another Fed rate hike this month with unemployment dropping to a 16-year low, despite a “severe pullback” in hiring last month. If realized, this would be the second rate hike in the US this year, following a 25-basis-point increase last March. The Fed has so far signalled two more hikes within the year. The FOMC had raised rates by the same magnitude in December 2015 and 2016 after keeping them close to zero for nearly a decade.

On the other hand, IHS’ Mr. Biswas said that the BSP will likely have a “tightening bias” but will remain focused on domestic inflation and economic growth rather than the Fed’s interest rate adjustments.

The BSP’s June 22 meeting will be the last policy review to be chaired by Mr. Tetangco, who ends his second and final term as BSP chief on July 2.