April inflation seen topping 5%, raising odds of BSP rate hike

RISING OIL PRICES and second-round effects could push inflation above 5% this month, increasing the odds of a 25-basis-point (bp) rate hike by the Bangko Sentral ng Pilipinas (BSP), according to the University of Asia and the Pacific (UA&P).

“Inflation will likely accelerate above 5% starting April, and the BSP has recently taken a more hawkish stance, which we think is uncalled for with the weak economy and job growth,” the UA&P said in its April Market Call.

“Oil prices are expected to stabilize below $90 a barrel as tensions ease, but inflation could rise above 5% from April due to second-round effects,” it added.

The UA&P said it maintained its 3.1% first-quarter gross domestic product (GDP) forecast, despite strong employment and a rebound in National Government spending in February.

“The Middle East war is dampening Philippine growth, especially with weakened global demand and inflation exceeding BSP targets in the coming months,” it said.

“Government spending and employment may pick up, but high inflation and interest rates will limit gains,” it added.

However, it said it expects an economic recovery in the second half of the year as government spending accelerates once the Middle East conflict nears resolution.

Growth in the consumer price index accelerated to 4.1% in March, breaching the BSP’s 2%-4% target.

The BSP expects inflation to average 5.1% this year. For 2027, the BSP’s inflation forecast is at 3.8%.

“With above-target inflation expected for this year, we see a more hawkish BSP treading an awkward policy path between lower growth prospects and supply-side-driven inflation,” the UA&P said.

“There is now more than a 50% chance for the BSP to hike by 25 bps in its April meeting to anchor inflation expectations and give relief to the peso,” it added.

A BusinessWorld poll conducted last week showed that 11 out of 19 analysts expect the Monetary Board to hike the target reverse repurchase rate by 25 bps at its policy meeting on April 23.

If realized, this would bring the benchmark rate to 4.5%, marking the first tightening move from the BSP since October 2023.

“I think it is going to be a 50-50. I think it is going to be a divided Monetary Board meeting with regard to policy,” China Banking Corp. (Chinabank) Chief Economist Domini S. Velasquez told Money Talks with Cathy Yang on Monday on One News.

Chinabank expects the BSP to keep policy rates steady with the oil price shock driving inflation while domestic demand remains fragile.

She said it is hard for policymakers to anticipate inflation expectations amid a volatile environment but noted that the release of the first quarter GDP data in May might help.

“(I)t’s a very volatile environment; just last Friday, we had the Iran minister announcing that the Strait will be open. Over the weekend everything changed, so it’s quite difficult to anticipate inflation expectations,” she added.

She said inflation pressures are stemming from external factors, that is, oil prices.

“What we are seeing is that these are just supply shocks … we think there is not much room (for monetary policy) to affect domestic demand,” she added.

Household consumption growth slowed to 3.8% in the last quarter of 2025, below its typical 5% pace, signaling weakening demand.

She said that in 2022, when oil prices surged due to the Russia-Ukraine war, pent-up demand from the pandemic pushed economic growth to 7.6%.

“This year, we do not think we are going to reach even 5%,” she added.

“We initiated some measures to make sure that people are not be hit by that problem or at least will lessen the impact of that inflation problem,” she said.

However, she said that these initiatives, including work-from-home schemes, will dampen demand for electricity, public transport, and retail and thus will also bring down growth.

“That’s something we’re seeing, that’s why we think demand is going to be slowing down. We’ve seen unemployment at around 5% but the latest data was around February, in March we will see that higher especially with transport workers,” she added. — Justine Irish D. Tabile