Philippine headline inflation accelerates year-on-year in April, BSP likely to hike interest rate in May

Philippine headline inflation continued to be high in April. On a year-on-year basis, the headline consumer price inflation accelerated to 4.5 percent in the month from March’s 4.3 percent , consistent with market expectations. On a sequential basis, the headline inflation continued to be strong at 0.50 percent. Philippine inflation has been rising due to the recent tax reforms and sustained high growth.

Core rate also accelerated in the month, rising by 0.44 percent sequentially. On a year-on-year basis, core inflation came in at 3.45 percent.

The on-year pace of inflation accelerated or remained elevated in several major components. Among the key drivers were increased prices of alcoholic beverages and tobacco, followed by food items. The former continued to show the effects of higher taxes while food component was likely driven by increased rice prices. Moreover, higher electricity rates and transportation costs also added to the pressures.

This inflation trajectory, along with solid imports and credit growth, warrants a rate hike, noted ANZ in a research report. But, until recently, the Philippine central bank had not hinted at any inclination to hike rates.

The situation has slightly changed in the past few days with the central bank implying that price pressures are spreading and that it was ready to take measures to protect price and financial stability. It was also of the view that the economy can withstand higher interest rates if required.

“This view of the central bank has raised the odds for a rate hike next week”, added ANZ.

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