In March, Philippines’s headline inflation accelerated slightly to 1.1% y/y after slowing in the past two months. Meanwhile, core inflation remained at 1.5%, even though the core prices increased 0.1% m/m nsa. The rise in oil pump prices on monthly basis countered the projected drop in food prices. However, the direction of food inflation will be observed closely, said ANZ. Philippine’s government reportedly imported onions and sugar due to protracted impact of El Niño and subsequent low harvests.
According to ADB’s recent report, the long term impacts of the drought are expected to result in 1.6% drop in global rice production in 2016. Even if the government has largely secured rice supplies by locking import contracts, prices of other sourced agricultural products are expected to have upward pressure, noted ANZ.
“Nevertheless, we expect the persistence of depressed oil prices to likely keep average inflation to 1.9% y/y in 2016, before rising to 3.0% in 2017 (from 2.9% and 3.4% respectively)”, added ANZ.
In the second quarter, Philippines’ central bank, BSP, is still likely to change its policy framework into an official interest rate corridor. The postponement of additional US Fed tightening, alongside environment of low inflation, provides BSP sufficient room to keep policy settings unchanged through Q3, according to ANZ.
“For now, we shift our expectations of BSP policy tightening to Q4 (previously Q3)”, says ANZ.
