S&P sees temporary inflation

MANILA — The sharp rise of commodity prices is likely temporary, S&P Global Ratings said, as it also doused fears that the Philippine economy may be at risk of expanding at an unsustainable rate.

“The sustained high pace of growth plus a recent increase in inflation has led some analysts to wonder about the possibility of overheating,” the credit rater said in a report.

“However, in our view, the high growth is the result of continued demographic dividends as well as higher investment rates in the past halfdecade, while higher inflation is a temporary effect of the implementation of the first tax reform package earlier this year,” it added.

Amid double-digit credit growth that has fueled concern of overheating, the Philippine economy grew 6.8 percent in the first quarter, faster than the downwardly revised 6.5 percent in the preceding three months and the 6.4percent recorded in the comparable period last year.

Using 2012 as base year, inflation last month accelerated to 4.5 percent, the fastest pace in at least five years.

Year-to-date, inflation averaged 4.1 percent or above the Bangko Sentral ng Pilipinas' 2-4 percent target range, which is partly blamed on the Duterte administration's new tax law.

To tame rising consumer prices, the BSP early this month lifted key rates by 25 basis points.

“[T]he recent rate hike by Bangko Sentral will help to ease potentially higher inflation expectations,” S&P said.

“Inflation will likely remain high for a few more months before the tax reform-induced one-off spike dissipates in the second half of the year,” it added.