Inflation likely exceeded 5% in May

HEADLINE inflation likely further accelerated in May on the back of higher food and commodity prices, economists polled by The Manila Times said.

Projections for the month ranged from 5.2 to 5.4 percent with a 5.4 percent average, faster than the three-year high 4.9-percent print in April. Inflation in May last year settled at 4.1 percent.

The Bangko Sentral ng Pilipinas (BSP) earlier forecast inflation to hit 5.0 to 5.8 percent.

Official May inflation data will be released by the Philippine Statistics Authority (PSA) on June 7. Economists from Rizal Commercial Banking Corp. (RCBC), Security Bank Corp. (SBC) and ANZ Research projected inflation to hit 5.4 percent.

RCBC Chief Economist Michael Ricafort said inflation likely further picked up due to the recent increase in global oil prices due to the Russia-Ukraine war.

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“Russia’s war with Ukraine since February 24, 2022 has resulted in higher inflationary pressures brought about by higher global prices of oil, grains, wheat, flour, other food commodities, minerals, and other global commodities, especially those supplied by Russia and Ukraine to the rest of the world,” said Ricafort.

Diesel prices increased by as high as P4.20 per liter.

Ricafort believes that the disruptions in the global supply chain could be aggravated by the Russia-Ukraine war with additional disruption caused by lockdowns in China.

He added that the weaker peso exchange rate versus the US dollar could have also added to import costs and overall inflation. The Philippine peso remained weak throughout May, touching a low of P52.50:$1 in the first week.

Ricafort said that aside from these, the main inflation driver will be higher minimum wages.

The Regional Tripartite Wages and Productivity Boards (RTWPBs) in the National Capital Region (NCR) earlier granted a wage increase of P33, bringing the new minimum wage rate to P570 and P533 for workers in the non-agriculture and agriculture sectors, respectively. Wage increases in Central and Western Visayas were also approved.

“Sources of second-round inflation effects include higher wages, possible hikes in transport fares that could lead to higher prices of other affected goods and services in the economy,” said Ricafort.

In a report, SBC Chief Economist Robert Dan Roces for his part, said the higher food prices may have contributed approximately 1.8 percent to the headline inflation reading as upside risks from the heavily-weighted basket begin to emerge, while utilities may have contributed 1.5 percent and transportation 1.3 percent. “Current estimates show that inflation remains mostly cost-push driven and may peak this quarter before easing at elevated levels of above 4 percent for the rest of the year,” said Roces.

Roces said that given the upside risks to local inflation, the US Fed’s and other major central banks’ policy adjustments, and the Peso’s depreciation, the central bank is expected to raise policy rates by another 25 bps this June 23 and 50 bps more in the second half, bringing the end of year policy rate to 3.0 percent, which is also in line with US Fed rate hikes.

ANZ Research meanwhile the higher inflation during the month could be driven by demand recovery, disruptions in food supply, and higher fuel prices. It noted however that a reduction in May electricity rates by Meralco and lower LPG prices likely provided partial relief to local households.

Meralco reduced the average household’s bill per kilowatt-hour by P0.12. Oil firms slashed the price of LPG by P5.73 kilogram (kg) to P5.75 per kg, or around P63.03 to P63.29 every 11-kg cylinder. The price of auto LPG was also reduced by P3.22 per liter. “Overall, inflationary pressures will remain a key challenge for the Philippine economy throughout 2022,” said ANZ Research.

Regina Capital Development Corp. Managing Director Luis Limlingan said inflation likely hit 5.2 percent in May. “Our forecast is for inflation to tick higher at 5.2 percent on the back of higher food and commodity prices, especially oil,” he said.