Angelo Taningco
Economist, Treasury Group

Philippine inflationary pressures continue to gain traction as the 2012-based CPI inflation quickened to 4.5% yoy in April from 4.3% in March. The April figure matches Bloomberg’s market median forecast and slightly higher than our estimate by 0.1 percentage point. For the first four months of the year, we computed the average CPI inflation to be at 4.0%, already touching the upper end of the government’s inflation target range. At its current pace, we expect CPI inflation to move closer towards 5% this month and could even breach this rate in subsequent months. In comparison, using the old base year (2006), CPI inflation accelerated to 5.1% yoy in April from 4.8% in March.

The 2012-based CPI inflation uptick between March and April was driven by sharper price upswings in eight out of eleven commodity groups in the CPI such as alcoholic beverages and tobacco; housing, water, electricity, gas, and other fuels; transport; and restaurant and miscellaneous goods and services, among others. Moreover, food price inflation despite moderating to 5.5% yoy in April from 5.7% in March was still elevated largely due to relatively sharp price increases in rice, fish, fruits, meat, and vegetables. We believe food supply disruptions have likely contributed to food price inflation for the month. Meanwhile, other inflationary factors that we observed include rising global oil prices and TRAIN’s excise taxes on select product items (ex. tobacco, sweetened beverages). The peso, which has appreciated in April, is still relatively weak on a year-to-date basis and therefore may still have contributed to import costs.

We continue to see risks to our inflation outlook tilted to the upside. We believe this latest inflation data will be discussed alongside other pertinent indicators in the upcoming monetary policy meeting of the BSP scheduled on 10 May. There is growing consensus in the market that a 25bps policy rate hike on that meeting will be made. We still maintain our view that a modest monetary tightening is likely to be imminent this quarter. But given the latest inflation trend and with our outlook on inflation, we now expect that the 25bps rate hike will be initiated this month.

Figure: Consumer Price Inflation & Inflation Target

(yoy %)

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