The Bangko Sentral ng Pilipinas (BSP) forecasts that inflation for the month of May could settle at a low of 3.7 percent versus actual rate of 3.8 percent in April or it could increase to as high as 4.5 percent due to elevated power and food prices especially vegetables.

The BSP on Friday, May 31, in a month-ahead inflation projection for May said “continued increases in electricity rates and vegetable prices alongside recent peso depreciation are the primary sources of upward price pressures for the month.” The peso broke past P58 vis-à-vis the US dollar amid speculation that the BSP’s Monetary Board may cut the policy rate ahead of the US Federal Reserves.

The BSP said, however, that consumer price index (CPI) for May could be lower than April’s because of the tempered oil prices.

“Lower prices of rice, fish, and fruits as well as lower domestic oil and LPG prices could offset the upside price pressures,” said the BSP.

The BSP also reiterated that it “will continue to monitor developments affecting the outlook for inflation and growth in line with its data-dependent approach to monetary policy decision-making.”

In a recent economic briefing, BSP Governor Eli M. Remolona Jr. said they have subdued inflation after peaking at 8.7 percent in January 2023.

He said the BSP is “now beginning to tame inflation” as he forecasts average inflation for 2024 and 2025 of within the target range of two percent to four percent from the actual six percent in 2023.

However, the BSP is anticipating a higher inflation rate for the month of May to July but expects the CPI to fall within the target band in the third quarter.

As of May 16, the BSP has a risk-adjusted inflation forecast of 3.8 percent for 2024 and 3.7 percent for 2025.

Based on the latest private sector economists’ inflation expectations’ survey, the CPI forecasts are not too far off from the BSP’s, which was 3.7 percent for 2024 and 3.5 percent for 2025.

Analysts expect within-target inflation over the policy horizon but with lingering uncertainty, it could settle at the higher end of the two percent to four percent target because upside risks continue to dominate due mainly to supply chain disruptions.

The BSP said that generally, inflation expectations are still well-anchored.

The main upside risks to the inflation forecast are the following: elevated prices of basic goods (particularly oil and food, including rice) owing to supply-side pressures brought by the geopolitical conflict in the Middle East; adverse impact of El Niño; and potential negative effect of La Niña in the second half of the year.

Analysts also cited downside risks that will come from: easing albeit still elevated food and non-food inflation, such as rice and oil; and waning inflationary pressures on prices as El Niño and base effects weaken in the near term.

Since the risks to the inflation outlook continue to lean toward the upside, the BSP said potential price pressures are linked mainly to higher transport charges, food prices, electricity rates, and global oil prices.