ING sees inflation peaking at 5% in May

MANILA, Philippines — Dutch financial giant ING Bank sees inflation peaking at five percent in May given the exposure of the Philippines to the global commodity price surge.

Nicholas Mapa, senior economist for the Philippines at ING, said inflation may quicken rapidly in the coming months due to the country’s exposure to the global commodity price surge.

Mapa explained the Philippines is heavily reliant on imported crude and elevated energy prices have already manifested in the domestic market.

Furthermore, Mapa said local fuel prices are currently 45 percent higher than the same period last year, suggesting a stark pickup in transport costs and utilities.

He said the price of other integral imports such as rough rice, a key staple for Filipinos, is also edging higher.

Mapa said the price of rough rice in the world market is up by 10 percent and could figure into domestic inflation soon enough.

“We expect full-year inflation to settle at 4.3 percent with the headline number cresting five percent as early as May,” Mapa said.

Latest data from the Philippine Statistics Authority (PSA) showed inflation averaged three percent in the first two months, well within the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP).

Last March 24, the Monetary Board kept interest rates at record lows for 11 straight rate-setting meetings or since November 2020 to help the country fully recover from the impact of the pandemic.

“The central bank opted to keep rates untouched yet again, citing the need to safeguard the economic recovery even as they described the economy as having gained stronger traction,” Mapa said.

After the meeting, BSP Governor and Monetary Board chairman Benjamin Diokno cited the uncertainty of the ongoing war in Ukraine and potential fresh waves of COVID-19 as the main reason for the pause.

Likewise, the BSP now expects inflation to breach the target after raising its forecasts to 4.3 instead of 3.7 percent for this year and to 3.6 instead of 3.3 percent for next year.

In an interview with Bloomberg, Diokno said normalization is expected to commence in the second half and the benchmark policy rate could be raised to up to 2.75 percent.

Mapa said the BSP chief has given forward guidance suggesting that a rate hike would likely be delayed to the second half, as it is not moving in step with the US Federal Reserve that has started its interest rate liftoff.

The economist warned that a delay could translate to BSP falling behind the curve as other global central banks, such as the Fed could have possibly raised rates by as much as 100 bps.

“A prolonged pause from the BSP even in the face of surging inflation could result in the de-anchoring of inflation expectations, requiring a more forceful tightening cycle from the bank down the line,” Mapa said.