Inflation is expected to drop in May

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Headline inflation in the Philippines likely moderated in May due to falling food prices, economists interviewed by the Manila Times said.

Projections for the month ranged from 4.2 to 4.5 percent with an average of 4.3 percent, lower than the 4.5 percent recorded in April.

Inflation in May of last year stood at 2.1%.

The Philippine Statistics Authority (PSA) will release official May inflation data on June 5.

HSBC Global Research and an economist from Security Bank Corp. (SBC) forecast that inflation will reach 4.5%.

In a report, HSBC said prices have stabilized in the domestic market due to foreclosure restrictions.

The latest data from the Ministry of Agriculture showed that the current prices of well-milled rice imported as of May 28 fell to P40 per kilogram (kg) from P47 a month ago, while the price of regular milled rice was 44 P per kg.

The list price for pork ham, meanwhile, was P 350 per kg compared to P 370 per kg in April, while a kilo of pork belly costs P 380 per kg, the same price as last month.

The lockdown has led to a reduction in pressures on the demand side, as evidenced by recent impressions of the Consumer Price Index (CPI). The good news is that the pressures on the supply side that have led to a rise in inflation at the start of the year also appear to have eased considerably “. It said.

The report says food and beverage prices have declined sequentially over the past two months.

“Given recent price trends, headline inflation is still expected to exceed the central bank’s 2-4 percent target range by year-end, but just slightly above it,” HSBC said .

Due to the expected easing of inflation, HSBC said the Bangko Sentral ng Pilipinas (BSP) is expected to keep the policy rate at 2.00 for the remainder of the year.

Take into account pig issues

SBC chief economist Robert Dan Roces said their forecast range was 4.3% to 4.7%.

“We expect the underlying price pressures to continue to moderate, with a likely substantial month-over-month decline in the heavily weighted food price basket, helping to dampen overall price growth due to the effects. preliminary of the temporary reduction in pork tariffs and the increase in the minimum access volume (MAV) for imported pork; lower food inflation will also outweigh higher electricity costs for the month ” Roces said.

President Rodrigo Duterte signed Decree 133 on Monday raising the country’s MAS or pork quota from 54,210 metric tonnes (MT) to 254,210 tonnes.

MAV refers to the amount of a specific agricultural product that can be imported at a lower tariff.

Duterte also endorsed the National Economic and Development Authority’s recommendation to reduce pork tariffs.

The Manila Electric Company (Meralco), meanwhile, increased its rates by 0.1853 pesos per kilowatt hour (kWh) in May, bringing the monthly rate to 8.5920 kWh.

Roces said transportation costs are also expected to moderate in the coming months as the base effects of this index begin to wear off.

He said, however, that rising global oil prices posed an upside risk to inflation.

As of May 28, the global benchmark Brent was at $ 69.63 per barrel, the highest close since May 2019.

The chief economist of Rizal Commercial Banking Corp. Michael Ricafort, for his part, said inflation likely stabilized at 4.3% in May.

“There would be an immediate easing of inflation due to the one-year temporary increase in pork imports (MAV) at lower tariffs, as well as the temporary reduction in rice import tariffs, in the framework of non-monetary measures to better cope with inflation factors on the supply side in order to bring down food prices and headline inflation, ”he said.

Ricafort said better weather conditions that increase the local food supply will also help reduce food prices.

He said, however, that offsetting factors that could still keep inflation relatively high in the coming months include low base effects and rising global oil prices.

Ricafort said inflation could settle at 3% from November as the base effects fade.

“Nonetheless, easing inflation would still support a more accommodative monetary policy, at least by keeping the local key rate at a record low of 2% for the foreseeable future, as long as the economy still needs all measures support it could to help the economy recover from the Covid-19 pandemic as monetary policy would do more of the heavy lifting for the economy amid the lack of funding for any further stimulus, ”said said Ricafort.

“Any further reduction in the reserve requirement ratio of large banks from the current 12% remains possible, especially if inflation stabilizes further,” he added.

ANZ Research, meanwhile, gave the lowest projection of 4.2 percent which it also attributed to falling food prices.

“Supply-side bottlenecks affecting food prices have likely eased as movement restrictions have been eased. Pork prices are also expected to be somewhat lower after the tariff reduction. ‘importation (which, however, were upped a notch again in mid-May), ”ANZ said.

“Transport costs are expected to remain high. Overall, we expect a long break in rates at least, until inflation returns sustainably within the BSP target range (2-4%)”, he added.

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