ANZ Research raises forecast 2018 inflation for Phl to 4.6%

The ANZ Research raised its 2018 inflation forecast for the Philippines to 4.6 from the original target of 4.1 percent despite the lower-thanexpected inflation in May.

Shashank Mendiratta, economist for Asia at ANZ, said the 4.1 percent average inflation in the first five months is above the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP).

Inflation last month was lower than projections as the Department of Finance (DOF) placed it at 4.9 percent, while the BSP’s range was from 4.6 to 5.4 percent.

Notwithstanding the downside surprise, Mendiratta said the investment bank raised its inflation forecast due to several headwinds.

“More importantly, the combination of robust domestic demand, lingering impact of tax reforms, and elevated global crude oil prices amid a weaker peso continue to present a challenging environment,” the economist said.

Inflation hit a fresh fiveyear high of 4.6 percent in May from 4.5 percent in April due to rising oil prices and the impact of the implementation of Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law.

This brought the average inflation in the first five months to 4.1 percent.

Mendiratta said ANZ expects the BSP to deliver another rate hike in August.

“We continue to expect one more rate hike of 25 bps in August,” Mendiratta said.

On the other hand, Metropolitan Bank & Trust Co. research analyst Pauline Revillas echoed Mendiratta’s sentiment that the BSP would raise interest rates one more time this year.

“Nevertheless, one more BSP rate hike is still in the offing to curb second-round inflationary effects,” she said.

She said inflation could be near or has reached its peak this month as can be seen on the month-on-month movement in May compared to the start of the year.