By Reicelene Joy N. Ignacio

THE OVERALL RISE in prices of widely used goods likely slowed from a year ago in May though it could have steadied at April’s 16-month-low pace, according to a poll of economists late last week, even as the central bank’s estimate on Friday bared expectation that May could have paused a monthly inflation decline seen since November 2018.

A poll among 11 economists yielded a three percent estimate median, lower than the 4.6% inflation recorded in May 2018 and flat from April that was the slowest in 16 months or since December 2017’s 2.9%.

Analysts’ May Inflation Rate Estimates

The Bangko Sentral ng Pilipinas’ (BSP) Department of Economic Research said on Friday last week that it expected May inflation to come in at 2.8-3.6% when the Philippine Statistics Authority reports official data on June 5.

A sustained slowdown in inflation coupled with a disappointing four-year-low 5.6% gross domestic product growth last quarter prompted the BSP’s Monetary Board (MB) to cut benchmark interest rates by 25 basis points (bp) in its May 9 meeting, partially dialing back a cumulative 175 bp hike fired off last year as inflation spiked.

The MB followed the May 9 rate easing with a 200 bp gradual cut in banks’ reserve requirement ratio (RRR) that is estimated to free up more than P200 billion for lending when the adjustments are completed in late July.

Emmanuel J. Lopez, Colegio de San Juan de Letran Graduate School dean, said in an e-mail: “I surmise that inflation rate for May has further gone down to 3.4% because prices remain stable despite intermittent oil price hike. Interest rate also has gone down, proof that there is no excess money in circulation…”

Robert Dan J. Roces, chief economist at Security Bank Corp., said: “We have been mentioning in the past the upside risk from higher oil prices but this month’s price averages for West Texas (Intermediate) and Brent have decreased 2.29 per barrel and 1.05/bbl, respectively, from last month’s mean. Further, retail pump price for premium gasoline… have fallen by around P1.15 since April 30.”

At the same time, “[r]isks to global oil prices remain… on the back of a prolonged United States-China trade war, Organization of Petroleum Exporting Countries’ cuts and (US) sanctions on Iran and Venezuela.”

“Food inflation has also continued to fall. The BSP has raised concerns about the effect of El Niño on food prices. Yet, despite minor disruptions, El Niño has not affected retail prices… Add to this, the effects to food price easing by the rice tariffication law that boosts imports of rice, ensuring stable supply.”

For his part, Michael L. Ricafort, head of economics research at the Rizal Commercial Banking Corp., noted that “[t]he peso exchange rate versus the US dollar has been confined in a relatively narrow P1 range (mostly at the range of P51.70-P52.70 levels) since the start of 2019 and currently near the lower part of the range… that helps lower prices of imports such as oil, rice, capital goods, other consumer goods, as well as… in easing overall inflation.”

Mr. Ricafort added that a “[h]igher base/denominator of inflation a year ago due to bigger and more price increases in most months of 2018… has mathematically reduced the year-on-year inflation since the start of 2019 and may lead to further easing of inflation for the remaining months of 2019 to the two percent levels or even lower especially in the latter part of 3Q in 2019 to the early part of 4Q 2019…”

Moody’s Analytics’ Katrina Ell said that “[s]ubdued rice prices are an important contributor to the deceleration” while “[o]il prices are an upward contributor.”

“We expect further interest rate cuts from the BSP this year to shore up domestic demand. There’s no need to keep the tightening from last year in place as inflation has cooled and capital is not flowing out of emerging markets as it was last year.”

HSBC, in its Global Economic Calendar, meanwhile said, “We expect headline inflation rose moderately to 3.1% y-o-y in May from 3.0% in April as a result of elevated oil prices and a continued increase in vegetable and fruit prices.”

“All things considered, however, inflationary pressures remain benign and headline prices are likely to hover around the midpoint of the Bangko Sentral ng Pilipinas’ 2-4% target,” it added.

“We expect full year inflation to average 3.1% in 2019, enabling the BSP to further loosen monetary policy in 4Q. We believe the BSP has scope for another 100-bp of RRR cuts and a 25-bp policy rate cut by yearend.”