INFLATION is likely to have accelerated beyond the central bank’s target in April, as food and oil prices continue to rise amid the ongoing war between Russia and Ukraine and damage to agriculture caused by tropical storm Agaton.
ONE BusinessWorld poll among 17 analysts gave a median estimate of 4.6% for April infltion that matches the midpoint of the forecast of 4.2% to 5% of Bangko Sentral ng Pilipinas (BSP).
If realized, this would be faster than the 4% in March and the 4.5% in April 2021. It would match the 4.6% print seen in October.
April would also be the first time that inflation exceeded BSP’s 2-4% target band since the 4.2% pressure in November 2021.
April ifldata will be released on May 5th.
“Higher electricity prices in Meralco (Manila Electric Co.) – serviced areas, increased domestic petroleum prices and higher meat and fish prices are the main sources of inflationary pressure during the month. Inflationary pressures will also come from positive base effects. These can be partially offset by lower prices. on fruits and vegetables and the largely stable peso, “BSP said Friday.
Pump prices and electricity prices continued to rise in April, reflaffected the volatility of global oil prices since Russia invaded Ukraine in late February.
China Banking Corp. chief economist Domini S. Velasquez said in an email that inflation in April was driven by persistently rising world crude oil prices.
Year to date, petrol, diesel and petroleum prices have risen by P18,45, P31,45 and P25,05 per liter. liter pr. ).
In April, Meralco prices for typical households rose by around P107 due to rising production tax. The total rate for private users in April increased by P0.5363 per. kilowatt-hour (kWh) to P10,183 per kWh.
“We have seen an expansion of inflationary pressures on other products in the consumer price index (CPI) curve, such as food … This April, we are likely to see higher food inflPartly driven by rising transportation costs and higher grain prices globally, ”said Ms. Velasquez.
Security Bank Corp. chief economist Robert Dan J. Roces said inflthe ration is likely to peak in the second quarter before falling above 4% for the rest of the year.
“In relation to the share, the food basket may have contributed about 1.4% to the overall inflation survey in April, while utilities gave 1.5% and transport 1.0%. These estimates show that inflration remains mostly cost-driven, and now fully rebuiltflects effects of the Russia-Ukraine conflict on prices, ”he said.
Makoto Tsuchiya, an economist at Oxford Economics, said inflinternational pressure is expected to continue due to their forecast of “higher-in-longer global commodity prices”, which willffect Philippines as it is a net commodity importer.
Agricultural damage due to tropical storm Agaton may also have temporarily pushed food prices up in April, said chief economist Michael L. Ricafort of Rizal Commercial Banking Corp.
The Ministry of Agriculture estimated agricultural damage from Agaton reached P3.27 billion per. April 25.
Heading inflation i fiThe first quarter was 3.4%, which is still within BSP’s target. However, in March, the central bank raised its inflation forecast for 2022 to 4.3%, aware of e.ffect of Russia-Ukraine war on oil and commodity prices.
The continued rise in commodity prices should be strengthened the case for the central bank to begin tightening monetary policy, said Bank of the Philippine Islands chief economist Emilio S. Neri, Jr.
“Two years of exceeding the target means that the BSP should have raised at the beginning of last year, when, unlike our ASEAN (Association of Southeast Asian Nations) neighbors, the Monetary Board had clearly lowered interest rates too low by 2020,” he said. Mr. Neri.
“The recovery of the local economy is clearly dependent on the reopening of the economy and has little to do with keeping interest rates suppressive (or negative) or not,” he added.
BSP has kept the key interest rate at 2% unchanged at a record low level since November 2020.
INflthe ration increased to 4.5% in 2021 from 2.6% in 2020, mainly due to low meat supply in the midst of the outbreak of African swine fever.
The economy grew by 5.7% in 2021, a reversal from the record fall of 9.6% in 2020. Economic leaders expect GDP to grow by 7-9%, although the impact of the war may dampen the recovery.
PNB economist Alvin Joseph A. Arogo said the central bank could go for a 50 basis point (bp) increase for the rest of the year as the recovery becomes more solid.
“We have a baseline forecast for two 25 bp rate hikes this year (25 bps on 23 June and a further 25 bps on 22 September) on the assumption that the economy is ready to return to its pre-pandemic level in the second quarter of 2022, ”said Mr Arogo.
Security Banks’ Mr Roces said the BSP could go so far as to raise interest rates by 75 bps and still support economic recovery.
“And 25-bp [increase] move in June is seen to remain ‘accommodative’ in the sense that it will still be far from the pre-pandemic rate of 4%, yet still enough to cover the difference from the Federal Open Market Committee’s rate, remain supportive of credit recovery to productive purposes, and help curb local inflation as a preventative measure for upside risks in the second half and beyond, ”said Mr. Roces.
The US Federal Reserve raised interest rates by 25 bps in March. It is expected to raise interest rates by another 50 bps when the Fed’s meeting ends on 4 May.
Last week, BSP Governor Benjamin E. Diokno said they may be considering a rate hike in June as they expected strong economic growth in fifirst quarter.
Financial data for the first quarter will be released on May 12th.
The Monetary Board will have its next policy review on 19 May. – Luz Wendy T. Noble