MANILA: The Philippines' annual inflation rate rose in May but not as quickly as the market had expected, raising the possibility the central bank could hold interest rates steady at a policy review next week after two rate increases in a row.
Annual headline inflation in May was 4.5 percent, becoming the highest rate in a year after the April reading was revised down from that level to 4.3 percent. The market had expected inflation would hit a two-year high of 5.1 percent.
"Clearly, the sources of inflation these first five months have been largely supply driven, and there is now a big possibility the BSP (Bangko Sentral ng Pilipinas) could pause from hiking at their next meeting," said Jun Neri, economist at the Bank of the Philippine Islands.
"Future inflation trend will depend largely on global oil price developments. Given this flat reading, combined with oil staying below $100 per barrel, there is reason to believe that (inflation) expectations will stay manageable," he said.
Central bank Governor Amando Tetangco said the higher inflation rate showed price pressure remained, a comment some analysts took to mean the central bank could deliver a third successive rate rise at its June 16 review.
The BSP raised rates by 25 basis points at its past two meetings, taking the policy rate to a two-year high of 4.50 percent.
Inflation has been a concern across Southeast Asia this year due to rising food and energy prices in rebounding economies.
"Looking at core inflation, in terms of the trend, it is clearly rising and together with Governor Tetangco's slightly hawkish comments, we can safely say we are likely to see a rate hike," said Su Sian Lim, economist at Royal Bank of Scotland in Singapore.
"It is not clear at this moment that demand-pull pressures are significant, there may be some, but global prices are also affecting the CPI."
The BSP has projected inflation would peak in the Philippines in the second or third quarter. The May rate came in at the bottom of its forecast range of 4.5-5.5 percent, and authorities said they would reassess the outlook for inflation while continuing to monitor price pressures.
BSP Deputy Governor Diwa Guinigundo said the data reflected stability in the peso and easing commodity prices, particularly oil. The Philippines imports nearly all its crude oil needs and is one of the world's biggest buyer of rice.
"We need to keep our ears on the ground to ensure that this easing trend in commodity prices is entrenched and inflation expectations remain anchored," he said in a text message.
"Based on the new assessment of the outlook and the capacity of the economy for continued calibration of monetary policy, the BSP shall correspondingly review and shape the appropriate monetary policy stance," he said.
The central bank's 2011 inflation target is 3 percent to 5 percent, after a 3.8 percent average inflation rate last year.
Copyright Reuters, 2011
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