Inflation sizzles to 5.4% in May, moving further away from target
MANILA, Philippines — Inflation quickened to over three-year high in May, threatening to hurt consumption as expensive fuel and food continue to squeeze Filipinos’ household budgets.
Inflation, as measured by the consumer price index, accelerated 5.4% year-on-year in May, the Philippine Statistics Authority reported Tuesday. This was faster than 4.9% clip recorded in April, but it nevertheless settled within the Bangko Sentral ng Pilipinas’ forecast range of 5.-5.8% for May.
Data showed the latest reading was the highest since November 2018, when a weak currency and rice supply problems pushed up inflation to 6.1%. It was also the second straight month that inflation breached the government’s 2-4% target.
The BSP admitted it might miss its inflation target this year amid a global supply problem believed to be a byproduct of the pandemic. To make matters worse, the ongoing Ukraine-Russia war is raising global energy prices and wreaking havoc on countries that are dependent on imported oil like the Philippines.
PSA data showed inflation averaged 4.1% in the first five months of the year.
“The upside pressures emanate from the potential impact of higher oil prices, including on transport fares, as well as the continued shortage in domestic pork and fish supply,” BSP Governor Benjamin Diokno said in a statement.
Dissecting the data, Filipino consumers now feel the pass-through effects of pricey fuel, with transport inflation rising 14.6% year-on-year last month. This, in turn, made key consumer items more expensive, including vegetables whose prices posted an annual increase of 15.2% in May.
“Normally vegetable prices face a high amount of volatility. We’ll see in the coming months,” National Statistician Clare Dennis Mapa said in a press conference.
Threat to economy
As it stands, inflation is emerging as a big headache for the incoming administration of President-elect Ferdinand “Bongbong” Marcos Jr., who is yet to reveal his full economic plans for the country.
The BSP is racing to control prices and has already made its first decisive action to fight inflation last month by hiking rates for the first time in three years. Diokno, who will cut short his term as BSP governor to join the Marcos cabinet as finance secretary, hinted at another rate hike in June.
The PSA has yet to release the latest core inflation figure, which excludes volatile price movements such as food and energy to give a cleaner reading of underlying trend or movement in the average consumer prices. But Nicholas Mapa, senior economist at ING Bank in Manila, expects price pressures to “persist in the near term given the ongoing supply chain disruptions coupled with surprisingly resilient domestic demand.”
“With inflation above target, we expect BSP to retain its hawkish bias for the rest of the year,” Mapa said.
Domini Velasquez, chief economist at China Banking Corp., agreed with Mapa but stressed that future rate hikes are expected to stay “gradual” to avoid hurting economic recovery.
“Higher inflation for the rest of the year is expected to temper domestic consumption in the second half of the year as high prices will force consumers to shift spending from non-essentials to essentials,” Domini said.
“Despite the higher inflation figure in May, we think that BSP will be gradual in its rate hikes for the year, as it supports a growth recovery, with headwinds such as a moderation in domestic consumption and weaker external demand,” she added.
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