An International Monetary Fund (IMF) official said both headline and core inflation in April will be the numbers to watch out for whether or not it is time for the central bank to pause on May 18 in its series of interest rate hikes, the next Monetary Board policy meeting. IMF Resident Representative to the Philippines, Ragnar Gudmundsson, said both headline and core consumer price index (CPI) are key numbers, considering headline inflation has come down in the past two readings, while core inflation has continued to rise. “Headline inflation came down in the last two months (but) core inflation continued to increase in March. Any decision on pausing the tightening cycle will therefore need to take the latest data for end-April into account, bearing in mind that inflation has become more broad-based,” Gudmundsson told Manila Bulletin in an email. The IMF is projecting a higher average rate for headline inflation for 2023 of 6.3 percent compared to the Bangko Sentral ng Pilipinas’ (BSP) six percent forecast. Gudmundsson said that they do expect headline inflation to return to the two percent to four percent government target range by end-2023 or early 2024 at the latest. BSP Governor Felipe M. Medalla has said himself that if the April inflation data is consistent with the last two data points in February and March which showed a declining headline CPI, he could consider a pause, especially since the exchange rate is relatively stable at the P55 level and lately, back to P56 versus the US dollar. Medalla said raising the BSP policy rate by a cumulative 425 basis points (bps) since May 2022 until March 23 was enough to eliminate excess demand. With a stable peso-US dollar spot market, he’s more confident inflation will be more manageable in the second half of the year. Meanwhile, the BSP is looking more at inflation on a month-on-month basis versus year-on-year inflation. For the first three months, inflation is still elevated. It is averaging at 8.3 percent. While headline inflation eased to 7.6 percent year-on-year in March from 8.6 percent in February, the core inflation which does not include volatile food and energy items continued to increased to eight percent from 7.8 percent in February. Medalla said that “Febuary and March month-on-month inflation rates were very low” and “if April month-on-month inflation is also low, that’s three consecutive months of low in month inflation, which could be supportive of a pause.” The government will release the April inflation data on May 5. Meanwhile, Gudmundsson said he expects the country’s GDP growth will slow down in the second half of this year until mid-2024 with BSP’s aggressive nine consecutive rate hikes including one off-cycle. Based on the IMF’s April 2023 World Economic Outlook report, it projects a Philippine GDP growth of six percent for 2023 and 5.8 percent in 2024. Both forecasts are lower than the government’s target of six percent to seven percent for this year and seven to eight percent in 2024 until 2028. Gudmundsson said the monetary policy rate hikes have a lagged effect, which means its impact on GDP will be felt in the second half of 2023 and in the first six months of 2024. The BSP estimates that for every 25 bps increase in the policy rate, it cuts growth by about two bps. Last year, the local GDP grew by 7.6 percent, which exceeded the government target of 6.5 percent to 7.5 percent. Reduced Covid-related restrictions opened up more sectors of the economy, creating jobs and further boosting economic activity in 2022.