THE SURPRISE slowdown in Philippine inflation may have sparked a market rally, but economists are warning that the country’s inflation battle is far from over.
After inflation eased to 6.8 percent in May from 7.2 percent in April, below market expectations and the Bangko Sentral ng Pilipinas’ forecast range, investors cheered. The peso strengthened, while Philippine shares ended the week among the region’s strongest performers.
But beneath the optimism, analysts said powerful inflation risks remain in play – from rising food prices and El Niño to geopolitical tensions and energy supply disruptions – keeping pressure on the BSP to continue raising interest rates.
For Jun Neri, lead economist at Bank of the Philippine Islands, the latest inflation report provides relief but not a reason for policymakers to let their guard down.
“We welcome the news very much. As you see today, the market is doing pretty well, for the peso and Philippine Stock Exchange,” Neri told ANC’s Market Edge. “But the BSP remains relatively behind the curve… The 6.8 percent is still too high compared to the 4.5 percent policy rate of the BSP.”
The Philippine Statistics Authority reported that May inflation slowed to 6.8 percent, bringing the year-to-date average to 4.5 percent. Transport inflation eased as fuel price increases moderated, although underlying price pressures remain elevated.
Neri said the softer-than-expected inflation print likely reduced the urgency for an off-cycle move, but not the need for additional tightening.
Why experts see inflation climbing again
Despite the May surprise, both Neri and Angel Pacis, CEO of AIA Investment Management and Trust Corporation, warned that inflation could accelerate again in the months ahead.
Neri said inflation may remain close to 7 percent in the near term before moving higher.
“We still expect inflation to be close to 7 percent for maybe a couple of months. But for the month of July, we expect it to approach the 8 percent, if not exceed the 8 percent level,” he said.
One major reason: the comparison base becomes much tougher. “If you look at inflation the same time last year, for the month of July, it was only 0.9 percent,” Neri explained.
In a separate ANC interview, Pacis echoed the warning, pointing to a convergence of risks that could keep inflation elevated.
“Rice prices will start to increase. You have the impact of El Niño. And of course, during the monsoon season, you actually see a big spike in food prices,” Pacis said. “We’re setting up for a perfect storm insofar as inflation is concerned.”
Among the biggest threats, Neri highlighted the possibility of prolonged disruptions in the Middle East.
Such disruptions could push up transportation, food, electricity and manufacturing costs globally, eventually feeding into consumer prices. (ABS-CBN News)
