Consumer price growth in May softened as the domestic economy absorbed the impact of the Bangko Sentral ng Pilipinas’ aggressive rate hikes, bolstering the case for an extended pause in monetary action.
According to the Tuesday report from the Philippine Statistics Authority, inflation in May eased to 6.1% year-on-year, showing a slower pace than the previous month’s recorded outturn of 6.6%.
In May, core inflation, which excludes volatile items like fuel prices, slightly retreated to 7.7%, presenting a softer figure compared to the preceding month’s rate of 7.9%.
The price growth observed in May depicted the domestic economy adjusting to the BSP’s forceful tightening measures aimed at curbing the surging inflation that began in mid-2022.
Factors such as supply chain bottlenecks, expensive fuel prices, a weak peso, and the full reopening of the Philippine economy, which fueled consumer spending, contributed to the inflationary pressures.
The central bank anticipates that inflation will reach its target range of 2-4% in 2023, expecting further moderation in price growth by September or October.
Year-to-date, inflation has averaged 7.5%.
Monetary policy has played a pivotal role in lifting the Philippines out of the inflationary situation.
The central bank injected 425 basis points, bringing the policy rate to 6.25%, effectively taming the challenging price growth.
Nicholas Antonio Mapa, a senior economist at ING Bank in Manila, maintains caution regarding potential second-round effects but anticipates that the headline rate will offer the BSP more flexibility.
Slowing inflation could provide the BSP with space to extend their pause, although external developments like a potential Fed rate hike might impact the forward guidance for an extended pause, as expressed in a Viber message.
Miguel Chanco, the chief emerging Asia economist at Pantheon Macroeconomics, projects that inflation may return to the BSP’s target range as early as September.
In an emailed commentary, it is outlined that the core view is for the Bank to gradually reverse some of its aggressive rate cuts in Q4, initially reducing rates by a total of around 50 basis points, and then maintaining a hold until that time.
Data from the Philippine Statistics Authority in May shows a softening of prices for certain commodities and services, but the pace is not sufficient to alleviate the burden on consumers.
Prices of specific food products, including rice, vegetables, and milk, declined across the country.
However, utility costs, such as rent and water, remained stubbornly high, with an increase observed in May.
Inflation within Metro Manila slowed to 6.5% as a result of a recent softening of local pump prices.
Similarly, areas outside the National Capital Region experienced a decline in inflation to 6% in May, primarily due to the easing of public transport fares.
Among the country’s poorest families, inflation in May stood at 6.7%, demonstrating a slower rate compared to the previous month’s recorded inflation of 7.4%.
Domini Velasquez, the chief economist at China Banking Corp., expects price growth to continue decelerating throughout the year, reaching the BSP’s target in the final quarter.
The belief is that inflation can reach the BSP’s 4% target as early as October, revising the previous estimate of November. This would provide the BSP with the opportunity to cut rates by the end of the year, as expressed by Velasquez in a Viber message.
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