MANILA, Philippines — Driven by more expensive power rates and a weaker peso, inflation may have accelerated within the 3.7 to 4.5 percent range in May, possibly breaching the two to four percent target for the first time in six months, according to the Bangko Sentral ng Pilipinas (BSP).
If inflation hits the upper end of the forecast at 4.5 percent, it will be the highest in seven months or since hitting 4.9 percent in October.
“Continued increases in electricity rates and vegetable prices alongside recent peso depreciation are the primary sources of upward price pressures for the month,” the central bank said.
Last month, Manila Electric Co. (Meralco) hiked electricity rates by P0.4621 per kilowatt-hour (kWh) after a significant reduction of almost P1 a month ago.
This brought the overall rate for a typical household to P11.4139 per kWh in May from P10.9518 per kWh in April.
The peso also remained mostly at the 58 to $1 level in May, closing the month at 58.51 yesterday, down P3.14 or 5.7 percent from its 55.37 finish in end-2023.
The central bank said these upward pressures could have been offset by lower prices of rice, fish and fruits as well as lower domestic fuel and LPG prices.
Last month alone, fuel price adjustments stood at a net reduction of P2.45 per liter for gasoline, P0.75 for diesel and P1.30 for kerosene.
Oil companies also cut the price of LPG by P1.09 to P1.15 per kilogram earlier in May.
“Going forward, the BSP will continue to monitor developments affecting the outlook for inflation and growth in line with its data-dependent approach to monetary policy decision-making,” the BSP said.
This was after inflation quickened for three straight months to 3.4 percent in February, 3.7 percent in March and 3.8 percent in April.
Inflation averaged 3.4 percent from January to April, well within the BSP’s two to four percent target range.
BSP Governor Eli Remolona Jr. earlier said inflation would likely breach the two to four percent target in the second quarter before returning back to within target by the third quarter this year.
Remolona also said the Monetary Board deems it appropriate to ensure sufficiently tight monetary policy settings until inflation settles firmly within the target range.
In its May policy review, the Monetary Board kept the key interest rate at a 17-year high of 6.50 percent, following 450 basis points of rate hikes from May 2022 to October 2023, to stabilize inflation and keep expectations anchored.
The BSP chief said that the central bank could cut interest rates as early as August, possibly ahead of the US Federal Reserve, depending on the local inflation path.