Inflation seen steady at 4.5% in May

Published May 31, 2021, 6:00 AM

by Lee C. Chipongian

Inflation rate for the month of May is projected to remain steady at 4.5 percent, same rate in April and March, said economist Robert Dan Roces of Security Bank Corp.

 Roces expects a range of a low 4.3 percent to a high of 4.7 percent for the May consumer price index.

“We expect that underlying price pressures continue to temper, with a likely substantial month-on-month decline in the heavily-weighted food price basket helping curb overall price growth on the back of the preliminary effects of the temporary reduction of pork tariffs and the increase of the minimum access volume for imported pork; the lower food inflation will also outweigh the higher electricity costs for the month,” noted Roces in a commentary. “For transport costs, this is expected to temper in the months ahead as the base effects from this index begin to wash out.”


Analysts at Metrobank-affiliate First Metro Investment Corp. and its research partner, the University of Asia and the Pacific said inflation will likely remain steady at the four percent level for some time.

 “While we don’t see inflation falling below four percent in the coming months, Bangko Sentral ng Pilipinas (BSP) will likely keep policy rates steady amidst a weak recovery,” according to FMIC-UA&P’s latest “Market Call” report. “We (don’t) see the BSP even allowing the thought of monetary tightening in the light of the economy’s stubborn weakness,” it added.

 Roces also expects the BSP to keep its two percent policy rate for the rest of 2021. He likewise agreed with BSP officials that for now, there are “subdued” second-round effect concerns, but the increase in global oil prices is something to closely watch out for and its impact on domestic inflation.

The BSP will announce its own May inflation projections on Monday (May 31). Inflation rate in January was 4.2 percent from December 2020’s 3.5 percent, and it rose to 4.7 percent in February before easing to 4.5 percent in March and in April.

BSP Governor Benjamin E. Diokno has said that inflation expectations remain well-anchored to the two-four percent BSP target despite above four-percent inflation since January.

The BSP’s outlook for inflation is that inflation will breach the target in the first half of this year due to supply side pressures before settling close to the midpoint of the target range in 2022. By the fourth quarter this year, the BSP also thinks inflation will start to decelerate closer to the target.

Generally, for the BSP, inflation expectations are higher for 2021 but anchored to target in 2022 until 2023. The elevated inflation expectations in the near term reflect the upside bias of the risks to the inflation outlook due to supply disruptions and rising global crude oil prices. 

Dionne said last week that the underlying price pressures continue to be subdued. However, “The BSP remains on the lookout for possible second-round effects that may require a monetary response.”

The BSP’s latest inflation forecasts for 2021 is 3.9 percent and three percent for 2022 – both averages are within the target band of two-four percent.