Inflation in May Exceeds Government Target Due to Rising Prices of Electricity and Vegetables
The Bangko Sentral ng Pilipinas (BSP) announced on Friday that inflation may have gone beyond the government’s target in May. The upward price pressures from expensive electricity and vegetables were exacerbated by the effects of a weakening peso.
According to the BSP, the inflation rate for last month likely ranged between 3.7 and 4.5 percent. If the figure hits the upper limit of the forecast range, the price increase in May would be faster than the 3.8 percent recorded in April. It would also breach the BSP’s target band of 2 to 4 percent after staying within that range for five consecutive months.
The central bank mentioned that electricity rates and vegetable prices continued to rise, attributed to the El Niño weather phenomenon. Additionally, the depreciation of the peso to 19-month lows further contributed to inflation by making imports more expensive.
However, the BSP noted that some key consumer items saw lower prices in May. It mentioned that lower prices of rice, fish, fruits, as well as reduced domestic oil and liquefied petroleum gas (LPG) prices could offset the upward price pressures.
BSP Governor Eli Remolona Jr. stated that inflation is expected to peak in May before easing as base effects become less unfavorable. He suggested the possibility of two 25-basis point rate cuts this year, with the first likely in August, ahead of the US Federal Reserve decision. Remolona also acknowledged that liquidity conditions were tighter than necessary following modest economic growth in the first quarter.
At its recent meeting, the Monetary Board of the BSP maintained the key rate at a 17-year high of 6.5 percent. Analysts mentioned that the Philippines and other Asian central banks, including those of Thailand, Vietnam, and Korea, can focus more on local developments rather than the actions of the Federal Reserve to determine their next policy moves.
The BSP stated that it would continue to monitor developments affecting the outlook for inflation and growth, aligning with its data-dependent approach to monetary policy decision-making.
