Inflation to average 4.2% in Q2 -- analysts

The country’s inflation is expected to remain above-target in the second quarter with an estimated average of 4.2 percent compared to the 3.3 percent average in the first quarter this year, according to analysts from First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P).

Based on its latest “Market Call” report, FMIC-UA&P analysts said inflation will likely increase to average at 4.2 percent this quarter “due to elevated prices of crude oil and rice, tempered by softer prices of other food products, and base effects (relatively low in Q2-2023).”

“But we expect a return to under 4% YoY (year-on-year) by Q3, and end the year at an average 3.8% uptick,” it added.

This bodes well for the economy since a slightly above-target inflation is manageable.

“Positive prints on the real economy for February and relatively mild inflation (i.e., within BSP target) for March still show a resilient economy poised to grow faster in

2024 than the 5.5% pace of GDP in 2023,” according to the report.

Earlier this month, Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. said the central bank may still cut the reverse repurchase (RRP) rate by the last quarter of 2024 based on the assumption that the inflation path will decelerate further in the second half of this year. 

For now, based on current conditions, Remolona said “the central scenario will be a fourth quarter” easing. “If things are worse, (then we will) postpone to the first quarter 2025,” he added.

There are several external factors that could affect inflation such as geopolitical tensions in the Middle East.

Remolona said the geopolitical tensions will not have a “large” impact on the BSP’s monetary policy.

The BSP has continued to hold the key rate steady at 6.5 percent since it raised it by 25 basis points (bps) in an off-cycle decision last October 2023.

The BSP’s risk-adjusted inflation forecast for 2024 is four percent and 3.5 percent projection for 2025. These are all within the BSP target inflation band of two percent to four percent. 

Despite persistent upside risks to inflation which have also raised expectations, the BSP said these expectations have remained “broadly anchored”. 

The risks to the inflation outlook continue to lean toward the upside while possible further price pressures are linked mainly to higher transport charges, elevated food prices, higher electricity rates, and global oil prices. The potential minimum wage adjustments could also give rise to second-round effects, said the BSP.