April inflation below expectations

PHILIPPINES - In Brief 05 May 2023 by Romeo Bernardo

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Food prices continued to fall for the third straight month, pulling down the headline inflation rate from a peak of 8.7% in January to 6.6% in April. As in February and March, April inflation was below analysts’ 7% median forecast. Aside from food prices, which partly reflects seasonal factors (e.g., fish), lower electricity rates for the month also contributed to disinflation. Meanwhile, stripping out the volatile food and energy prices, core inflation also softened but remained elevated at 7.9% (vs. last month’s high of 8%), pointing to continuing demand side pressures. Despite the US Fed’s decision to keep increasing its target rate yesterday by another 25bp, today’s inflation print should lessen pressure on the Monetary Board (MB) to do a matching increase. The key overnight policy rate currently stands at 6.25% compared with the 5-5.25% fed funds target rate. With the Fed hinting of a pause in rate hikes, the MB may find the over 100bp interest rate differential adequate for now and opt to keep its set of policy rates steady when it meets on May 18. Given the faster than expected deceleration in the headline rate, we now expect the average inflation rate for the year to fall below the 6.5% we forecasted three months ago, likely within the 5.5% to 6% range. We will revisit the point estimate together with our economic growth outlook in our 2nd quarter forecast report. The Philippine Statistics Authority will release Q1 GDP figures next week.