Philippine headline inflation eases in April, BSP likely to cut interest rate by 25 bps

The downtrend in Philippine inflation continued in April. The headline inflation reached the midpoint of the BSP target band. Sequentially, the consumer price inflation rose 0.3 percent in April, with transport prices rising 1.2 percent in the month. Overall food prices were up 0.1 percent sequentially, although rice prices continued to ease sequentially. A rise in the ‘housing & utilities’ component also contributed. Core inflation also rose 0.3 percent sequentially in April, the same rate as in the previous month.

On a year-on-year basis, annual headline inflation slowed to 3 percent from March’s 3.3 percent, settling at the mid-point of the BSP’s target band of 2 percent to 4 percent. Though decelerating food prices were a considerable contributor, annual rates inflation print, which eased to 3.4 percent year-on-year in April.

The transport component picked up to 3.8 percent year-on-year from 3.3 percent in March. The recent recovery in crude oil prices underpins a cautious approach in timing rate cuts, noted ANZ. The BSP is believed to take a wider view of inflation by weighing the rise in oil prices against countering developments such as easing food prices and core inflation.

“With the April inflation print confirming these trends, we expect the BSP to cut its RRP by a cumulative 75 bps in 2019, beginning with a 25 bps cut on Thursday. We see headline inflation to stay around the mid-point of the BSP’s target in the coming months. We forecast headline inflation to average 2.9 percent in 2019, slightly below the BSP’s estimate of 3.0 percent. A key risk is a harsher than anticipated El Niño weather pattern occurrence this year”, added ANZ.