PHL May inflation seen flat

Inflation last May is expected to be steady on the back of stable food and energy prices, a GMA News Online poll of private sector analysts showed.

A survey of eight analysts yielded a median inflation forecast for May of 2.65 percent, at the mid-point of the Bangko Sentral ng Pilipinas's 2.2 to 3.1 percent projection for that month.
May inflation figures are set for release this Wednesday, June 5.

Institution	May	Full-year
DBS Bank Ltd.	2.8	N/A
Standard Chartered	2.7	N/A
HSBC Ltd.	2.6	3.1
Citi Philippines	2.3	2.8
Metropolitan Bank & Trust Co.	2.6	3
Bank of the Philippine Islands	2.8	3.4
BDO Unibank Inc.	2.6	N/A
Security Bank Corp.	2.7	3.3
Median projection	2.65	3.1
Terms	%	%

“Sustained easing of non-food CPI driven by soft oil/commodity prices and stable food inflation on the back of favorable local food production, probably accounted for lower inflation in May,” said Jun Trinidad, country economist at Citi Philippines.

Manila Electric Co., the country's largest power provider, cut electricity prices by 12 centavos per kilowatt hour in May.  

Food prices, meanwhile, remained in check due to the harvest season, Bank of the Philippine Islands economist Emilio Neri Jr. said.

Eugene Leow, economist at DBS Bank Ltd. in Singapore., noted in a separate e-mail, “Food and energy prices are the biggest skew to inflation given their large weightings in the CPI (Consumer Price Index) basket.”

Inflation is expected to remain manageable for the rest of the year, with analysts' forecasts yielding a 3.1 percent median.

This is slightly below the central bank's 3.2 percent forecast and at the lower-end of its 3 to 5 percent target for the year.

“By the end of the year, we think that inflation is likely to accelerate but remain within the BSP’s target range,” said Jeff Ng, Singapore-based economist at Standard Chartered.

Patick Ella, economist at Security Bank, doesn't see any major price disruption. “So far, we don’t see any inflation pressures to cause an uptick in the headline inflation rate,” he said.

Neri noted that only “supply bottlenecks, particularly in food, during the rainy season” is the main upside risk to inflation.

Inflation last April eased to 2.6 percent, a 13th month low. The latest inflation figure pulled the year-to-date inflation to 3.0 percent.

Policy implications

With consumer prices in check, analysts see monetary authorities keeping policy leaning toward an expansionary stance.

“We do not see a policy rate change,” said Ng. The Bangko Sentral has kept policy rates—the benchmark for bank loans—at 3.5 percent for overnight borrowing and 5.5 percent for overnight lending since October last year.

But analysts were out of consensus on whether Bangko Sentral will tweak the yield from special deposit accounts (SDA), a tool to mop up excess liquidity.

“Main policy rates will be on hold but the SDA rate will likely be cut further,” said Trinh Nguyen, Hong Kong-based economist at HSBC Ltd.

Neri said this may be in line will the Bangko Sentral's plans to use the so-called “interest rate corridor” in managing liquidity.

Citing the peso's recent weakening and the stellar 7.8 percent gross domestic product growth in the first quarter, Citi's Trinidad said, “SDA easing on the other hand, may have ended.”

So far, monetary authorities have slashed SDA yields thrice to 2 percent and limited banks' trust units' access to the window. — VS, GMA News