May inflation up; but lower than expected

PHILIPPINES - In Brief 05 Jun 2018 by Romeo Bernardo
The headline inflation rate continued to inch up to 4.6% last month from 4.5% in April, due to a combination of higher food prices (including rice), oil-related services (particularly transport), and the impact of higher consumption taxes (particularly commodities subject to excise taxes, e.g., oil, tobacco, sugary drinks). The headline rate is lower than the analysts’ median forecast of 4.9%. Noteworthy is the marked deceleration in inflation momentum, with the month-on-month rate dropping to zero in May from 0.5% previously. Because of this, we think that May’s inflation print would not by itself lead monetary authorities to raise policy rates again later this month, especially with improving rice stocks (and possibly, depending on OPEC decision, increased global crude oil supplies). On the other hand, as we said in our latest report, monetary authorities may respond to a number of developments that would put the 2019 inflation target at risk, including outsized wage adjustments.

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