May 2014 Inflation Analysis and Outlook

James Ryan Jonas

The Philippines’ inflation rate in May 2014 accelerated to 4.5% year-on-year from 4.1% in April. This number is above the market consensus of 4.2% and on the high end of the Bangko Sentral ng Pilipinas (BSP)’s target inflation 3.9% to 4.7% for the month.
For the first 5 months of the year, inflation stands at 4.2%, within BSP’s full year target range of 3-5%. Core inflation likewise accelerated to 3.1% from April’s 2.9%.

Higher food and electricity prices

Inflation was again driven by the Food and Non-Alcoholic Beverages index which rose at a quicker pace of 6.7% year on year (vs. April’s 6.2%). Increase in the prices of rice from last year was around 20% in May, while prices of other fruits and vegetables remain elevated due to extreme heat caused by summer.
On an annual basis, higher electricity rates from higher generation charges caused the Housing, Water, Electricity, Gas, and Other Fuels index to inch up by 3.7% (vs. April’s 3.0%). On a month-on-month basis, consumer prices rose by 0.51%, a further pick up from April’s 0.44%.
Food prices once again led the increase in overall consumer prices by rising 0.66% (vs. April’s 0.53%) as the lean season continued to push food prices up. Meanwhile, the increase in energy prices was a little slower at 0.76% month-on-month (vs. April’s 0.77%) due to lower electricity rates charged by the power distributors driven by lower ancillary and transmission rates.
While year-to-date inflation is still within the BSP’s target, it is seen that inflation is steadily picking up. The BSP has long been signaling that rates may be adjusted given that the “room to keep rates steady has narrowed.”

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James Ryan Jonas teaches business management, investments, and entrepreneurship at the University of the Philippines (UP). He is also the Executive Director of UP Provident Fund Inc., managing and investing P3.2 Billion ($56.4 Million) worth of retirement funds on behalf of thousands of UP employees.