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NEDA chief: Inflation likely peaked in May

HEADLINE inflation likely reached its peak at 4.6 percent in May, a Cabinet official said, noting a month-on-month easing from April.

“That’s the maximum, the 4.6 percent. That is what we are seeing. The rise in inflation has already slowed down,” Socioeconomic Planning Secretary Ernesto Pernia told reporters.

May inflation — up from 4.5 percent in April — was a new five-year high but month-on-month the growth eased to 0.2 percent from 0.3 percent.

It settled at the lower end of the Bangko Sentral ng Pilipinas’ (BSP) 4.6-5.4 percent forecast and was also lower than the Finance department’s 4.9-percent estimate and the 4.8-percent average in a Manila Times poll of economists.

The result will be considered by the BSP’s policymaking Monetary Board this Thursday, June 21, along with developments such as the US Federal Reserve’s decision last week to raise interest rates anew and signal that tightening would be more aggressive this year and the next.

The Fed move, banking giant HSBC said, will likely prompt the BSP to also raise interest rates.

“Amidst an already-strong US dollar environment, we believe the Fed’s more hawkish stance on 13 June places the onus on the BSP (and many other emerging market central banks) to follow suit,” it said.

HSBC said the Fed’s most recent guidance would factor in heavily during the Monetary Board’s June 20 meeting, leading to the central bank’s second 25 basis point (bps) rate hike for the year.

“We don’t believe this marks the start of a tightening cycle for the BSP. In fact, we believe that with the exception of a more hawkish Fed and the recent USD (dollar) rally, domestic economic conditions no longer favor additional monetary tightening,” it added.

“We believe that domestic economic conditions will continue to reign supreme in the BSP’s decision-making,” it continued.

“If economic data continue to point to slowing inflationary momentum and headline CPI (consumer price index) is still expected to retreat back to the BSP’s 2-4 percent target by 2019, we don’t expect any additional rate hikes this year.”

Earlier this month, BSP Governor Nestor Espenilla Jr. said that inflation could be slowing and “may be close to peak”.

“It helps that oil prices seem to have peaked and food price inflation is also slowing down,” he added.

“The MB will consider what further adjustments are necessary to firmly anchor inflationary expectations and ensure that the inflation target will be achieved in 2019.”

Rising inflation, along with strong economic growth, prompted the Monetary Board in May to raise rates for the first time in over three years.

The 25-bps adjustment took the BSP’s overnight borrowing, lending and deposit rates to 3.25 percent, 3.75 percent and 3 percent, respectively.

The Monetary Board also raised inflation forecasts for 2018 and 2019 to 4.6 percent and 3.4 percent, respectively, from 3.9 percent and 3 percent, previously.

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