Inflation breached 5%

PHILIPPINES - In Brief 07 Jun 2022 by Romeo Bernardo

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As expected, the headline inflation rate climbed to 5.4% in May, up from 4.9% in April. Continuing increases in fuel and food were still the main drivers of the headline rate, with both contributing to a sharper increase in food and restaurant services. On a month-on-month basis, consumer prices went up at a slower pace of 0.4% compared with 0.8% in April, helped by a refund in electricity distribution rates that partly offset the increase in generation charges.[1] Year to date, inflation averaged 4.1%. We are keeping our 5.5% full year forecast, expecting the headline inflation rate to remain on the uptrend in the coming months. As we wrote in our end-May outlook report, behind our inflation worry are: “(a) expectations of a prolonged Russia-Ukraine conflict alongside western sanctions that would not only keep global commodity prices at elevated levels, but may cause lower crop yields in poorer regions (due to less use of fertilizers) and exacerbate climate-induced crop shortages and push more countries to impose food export bans; (b) expectations of continuing aggressive US interest rate increases, by a total of 1.75ppt more before the end of the year and another 50bp next year to bring the fed funds rate to 3% by end 2023; and (c) second round effects from the initial supply shocks as approved regional wage hikes take effect, manufacturers who have been absorbing higher costs to preserve market shares start to protect margins with improving demand, and possibly, increases in transport fares.” The BSP has signaled another policy rate hike this month. The Monetary Board will meet on June 23. [1] https://company.meralco.com.ph/news-and-advisories/may-2022-rates-updates