INFLATION will likely peak at 5.8% next month, Standard Chartered Bank said, pushing the Bangko Sentral ng Pilipinas (BSP) to increase interest rates for a third time.
In a market report, economist Chidu Narayanan said the central bank will likely intervene with another tightening move as inflation maintains its ascent. The worst is not over for consumer prices which hit a nine-year high of 5.2% in June.
“We expect inflation to edge up further in July-August, increasing pressure on BSP to act; market expectations are moving slowly towards our forecast,” Mr. Narayanan said, pointing out that higher crude oil prices continue to exert upside risks to prices of basic goods.
The pass-on cost of the higher duties on fuel has just started to creep in through transport prices, following the provisional P1 increase in jeepney fares which took effect early July.
“We expected the second-round impact only in H2-2018, as we forecast higher transport prices pushing up supply chain costs to be a longer process,” the bank analyst added.
“Food inflation is also likely to remain high on high rice and fish prices, despite government efforts to reduce supply-side pressures. Risks to inflation are to the upside on higher oil prices and a weaker currency, in our view.”
Inflation averaged 4.3% during the first half, well above the central bank’s 2-4% target but still below the 4.5% forecast for 2018. Mr. Narayanan expects 2018 inflation to average 4.9% year on year, easing to 4.4% next year.
The Monetary Board raised rates by 25 basis points (bp) each during its May and June meetings to rein in future inflation, which brought the benchmark to the 3-4% range.
StanChart sees another policy tweak as early as the BSP’s Aug. 9 meeting, which would mean the third consecutive rate hike this year in keeping with its “commitment to return inflation to the target range.”
The BSP sees 2019 inflation settling at 3.3% as of its June 20 review.
More economists are pricing in other hike next month, with some even saying that a “more aggressive” 50bp increase is needed.
After a third hike, the central bank will likely pause and assess the impact of three successive rate adjustments, Mr. Narayanan said. — Melissa Luz T. Lopez
