Philippine headline inflation rises below expectations in May, BSP likely to hike rate in August

The Philippine headline inflation came in below consensus expectations in May. The consumer price inflation accelerated to 4.60 percent year-on-year in the month from 4.50 percent in the prior month. On a sequential basis, inflation was flat, as compared with 0.50 percent in April. Meanwhile, core inflation rose 3.6 percent year-on-year in the month, as compared with 3.45 percent in the prior month.

The deceleration in the sequential momentum was reasonably widespread, spread throughout food and non-food components. On a month-on-month basis, food prices fell 0.1 percent after rising 0.4 percent. The rate of rise in other components, including healthcare, utilities, and furnishings also decelerated. On the contrary, transport costs hardened predictably, rising 1 percent sequentially compared with 0.8 percent previously.

These developments are favourable. However, the headline inflation continues to be above the upper bound of the central bank’s target of 2 percent to 4 percent. Significantly, the combination of strong domestic demand, lingering impact of tax reforms, and elevated global crude oil prices in the midst of a weaker peso continue to present a challenging environment, noted ANZ in a research report.

“The downside surprise notwithstanding, the year- to-date headline CPI data and the above mentioned headwinds warrant us to revise our 2018 headline CPI inflation target higher to 4.6 percent from 4.1 percent previously.  We continue to expect one more rate hike of 25bps in August”, added ANZ.

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