Angelo Taningco
Economist, Treasury Group

Consumer price inflation has extended its upward trajectory in March. Using the new 2012-based CPI, headline inflation for the month was a record-high at 4.3% yoy, matching our forecast and slightly higher than the market’s 4.2% projection. Using the old 2006-based CPI, headline inflation accelerated to above-than-expected 4.8% in March (market forecast: 4.7%) from 4.5% in February.

Seven out of the eleven product groups in the 2012-based CPI registered higher price inflation, and these include the heavily- weighted food and non-alcoholic beverages; alcoholic beverages and tobacco; and housing, water, electricity, gas, and other fuels. We believe TRAIN’s excise taxes on tobacco, petroleum products, and sweetened beverages; supply disruptions on select food items (rice, fish, fruits, vegetables) partly due to weather conditions; rising global oil prices and consumer prices abroad; and depreciation of the Philippine peso have all contributed to the inflation acceleration.

For the first quarter of the year, 2012-based CPI inflation averaged 3.8%, which is within the government’s inflation target range of 2.0% – 4.0%. We continue to see potential upward inflationary pressures for this second quarter and even the third quarter, with our initial quarterly forecasts pointing towards an inflation rate of above 4.0%. This leads us to revise up our full-year 2018 inflation forecast to 4.2%.

We still think there’s a chance for the BSP to initiate a modest monetary tightening in the middle of the year in order to temper inflationary pressures. This, we believe, will become more likely if first-quarter GDP growth would indicate a solid pace. Against this backdrop, we still forecast a 25 basis point policy rate hike in June.

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