UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting comments on the latest CPI release in the Philippines.

Key Takeaways

“Headline inflation jumped further to 4.9% y/y in Apr (from 4.0% in Mar), exceeding Bangko Sentral ng Pilipinas (BSP)’s 2.0%-4.0% medium-term target range for the first time in seven months. The reading also surpassed our estimate (4.5%) and Bloomberg consensus (4.6%). It was again a broad-based increase in prices, led by higher fuel and food prices as well as electricity rates amid persistent weakness in Peso (PHP).”

“We believe that inflation will likely stay near the 5.0% level for the rest of the year as the Russia-Ukraine conflict lingers while China is still grappling with its COVID-19 outbreak. These two event risks alongside a more hawkish Fed will tilt inflation pressures higher amid elevated commodity prices, prolonged supply-chain disruptions, and weaker local currency due to narrower interest rate differentials with US rates. The ongoing petitions for a hike in minimum wage and public transport fare domestically will also lift inflation should they be approved. We reiterate our inflation forecast of 4.5% for this year (BSP est: 4.3%; 2021: 3.9%).”

“In view of broadening inflationary pressures, continued expansion in domestic economic activities and narrowing interest rate differentials with US Fed Funds rate, we stick to our BSP call for a 25bps hike in the overnight reverse repurchase rate to 2.25% by 2Q22. The next two Monetary Board meetings are scheduled on 19 May and 23 Jun.”