Philippine’s headline inflation steady in April, average inflation to be within central bank’s target in 2016

The core and headline inflation in the Philippines remained steady in April. The core inflation was steady at 1.5%, whereas headline inflation was at 1.1% last month. The utilities inflation rose 0.5% m/m nsa. Its effects were restricted by a slow rise of food prices by 0.1% m/m sa. The drought has reduced production of certain vegetables that has resulted in higher food inflation in National Capital Region.

Even if food price inflation continues to be weak, it will be monitored for and the impacts of El Niño. The noticeable drop in local fruit and vegetable production has been partly countered by pre-emptive importation by the Philippine government. Resisting the food prices trend, the rice price index continued to fall, declining 1.2% y/y because of the comfortable stock piles of the National Food Authority of Philippines. However, the global food production is likely to shrink by 1.6% y/y this year because of drought, noted ANZ.

“Nevertheless, we expect average inflation to remain within the 2-4% inflation target of the central bank in 2016”, added ANZ.

The central bank of Philippines, the Bangko Sentral ng Pilipinas (BSP), is expected to keep its policy unchanged, as it handles the transition to an interest rate corridor policy framework.  The central bank is likely to introduce the overnight, 7-day and 28-day term deposit window in the following weeks through an auction system to replace the current Special Deposit Account, said ANZ. The subdued outlook of inflation provides leeway to the central bank to move through the operational change without jeopardizing the inflation target.

“We continue to pencil in rate tightening to commence in Q4 2016, taking the cue from the US Federal Reserve”, added ANZ.