As economists forecast lower inflation this month

MANILA, Philippines — Inflation may resume its downtrend toward the midpoint of the two to four percent target of the Bangko Sentral ng Pilipinas (BSP) this month after an uptick in May, according to economists.

Sanjay Mathur, chief economist at ANZ Research, said the uptick in inflation to 3.2 percent in May from a 16-month low of three percent in April reflected the impact of the El Niño weather pattern.

“Despite the uptick, weaker demand pressures and a high base effect will likely keep annual inflation in check. As such, we continue to expect headline inflation around the mid-point of the target band,” Mathur said.

Mathur added high base effect would also come into play in the second half.

“We forecast headline inflation to average 2.9 percent in 2019, as does the BSP. The key risk is a harsher than anticipated El Niño weather pattern occurrence this year,” Mathur said.

ING Bank Manila senior economist Nicholas Mapa said headline inflation would take its cue from food inflation for the rest of the year due to the impact of El Niño phenomenon.

“The May reading caught market off guard but falls within the BSP’s inflation forecast band. Year to date inflation remains within target and BSP’s forecasts still point to inflation settling well within target. BSP’s remains committed to monitoring data and the inflation path and will act accordingly,” Mapa said.

Michael Ricafort, economist at Rizal Commercial Banking Corp., said inflation averaged 3.6 percent from January to May and within the BSP’s two to four percent target range.

Ricafort said inflation rate in the coming months of 2019 may likely resume its easing or declining trend largely due to the bigger inflation base effects.

“Thus, year-on-year inflation is expected to decelerate or slow down at a much faster rate to below three percent starting June 2019, deeper into two percent levels in most of Q3 2019 and Q4 2019,” Ricafort said.

According to Ricafort, there is even a chance for inflation to go down further to one percent levels in the late third quarter or early fourth quarter this year due to the very high inflation base as inflation peaked at 6.7 percent in September and October last year.

“Further easing in local monetary policy by way of another cut in policy rates remains possible as early as the next rate-setting meeting on June 20 (or in subsequent months,” Ricafort said.