Philippines Inflation May Exceed Target Temporarily, Central Bank Says

(RTTNews) - Consumer price inflation in the Philippines is consistent with existing projections and is likely to exceed the target range temporarily in the coming months, due to the impact of adverse weather on domestic agricultural output and positive base effects, the country's central bank Bangko Sentral ng Pilipinas said Wednesday.

Official data released earlier in the day showed headline inflation accelerated for the fourth month in a row to 3.9 percent in May from 3.8 percent in April.

That was within the BSP's forecast range of 3.7 - 4.5 percent for the month and the year-to-date average of 3.5 percent was within the government's inflation target range of 3.0 percent ± 1.0 percentage point for the year.

The BSP still expects full-year average inflation to settle within the target range for 2024 and 2025. In May, the BSP Monetary Board, governed by Eli Remolona, maintained the target reverse repurchase rate at 6.50 percent, but hinted at an interest rate reduction in the third or fourth quarter of this year.

The bank lowered the inflation outlook for this year to 3.8 percent from 4.0 percent, while the projection for 2025 was raised to 3.7 percent from 3.5 percent.

The acceleration in headline inflation in May was due to an increase in non-food inflation owing to higher electricity rates and an uptick in transport inflation. Food inflation slowed, but remained high in May, given the double-digit rice inflation, the BSP said.

Core inflation, which excludes volatile food and energy items, slowed further to 3.1 percent in May from 3.2 percent in April.

Prices rose a seasonally adjusted 0.3 percent month-on-month after a 0.2 percent increase in the previous month.

"Expensive rice is the main driver for inflation but we could see a steep drop in rice inflation after the Philippine government halved the tariff for imported rice, down to 15%," economists at ING said ahead of the release of the data.

"The BSP Governor is now talking up the prospect of cutting ahead of the Fed, something that is not helping the PHP."

The Philippine central bank's next rate-setting session is on June 27.