(May 5): The Philippine central bank will likely need to take more aggressive interest-rate hikes to tame the faster-than-expected inflation spurred by the Middle East war, according to analysts.
Consumer prices rose 7.2% in April from a year earlier, the fastest pace in three years, according to the Philippine Statistics Authority (PSA). That far exceeded all of the estimates in a Bloomberg survey and the central bank’s forecast of 5.6-6.4%. Prices had only gained 4.1% in March.
The latest data underlines how quickly price pressures have spread in the Southeast Asian economy, which imports nearly all of its oil needs from the Middle East. It also heaps pressure on the Bangko Sentral ng Pilipinas (BSP), which has so far signalled it would take gradual steps to tighten monetary policy to avoid stalling the economy’s recovery.
The BSP said it “will take necessary actions to ensure inflation returns to its 3% target within a reasonable time.” Policymakers remain vigilant for spillover effects, data-driven, and ready to act as needed, it said in a statement on Tuesday.
“We won’t rule out a forceful inter-meeting hike,” said Emilio Neri Jr, lead economist at the Bank of the Philippine Islands, adding that the BSP may likely increase the key rate by more than its usual 25 basis points for both regular and off-cycle meetings.
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The BSP just raised the key rate by a quarter-point to 4.5% in April and will meet again next month.
“By the time they meet in June, May inflation will be out and it’s not hard to imagine it hitting 8% or 9%,” Neri said. “If the policy rate remains below 6% by then, it could look awkward.”
The peso closed little changed on Tuesday after as falling as much as 0.3% against the greenback. It’s Asia’s worst-performing currency since the war in Iran broke out in end-February.
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April inflation was driven by a 21% jump in transport prices, as well as an 8% increase for housing, water, electricity, gas and other fuels. The cost of food and non-alcoholic beverages also jumped 6%, primarily due to rice and fish.
Month-on-month inflation stood at 2.6%, the highest since January 2000, according to the PSA.
President Ferdinand Marcos Jr’s administration plans to review its economic projections for 2026, as the US war on Iran continues to choke critical supplies and drive up the cost of crude and fertilizer. The BSP has warned that a prolonged oil price shock could dis-anchor inflation expectations, pledging to remain vigilant and guided by incoming data.
The government has provided aid to public transport drivers, farmers and fisherfolk to cushion the blow, but it has no sweeping fuel subsidies like neighbouring Indonesia and Malaysia. An El Niño dry spell, set to start in June, could also affect farm output.
“Our priority is to ensure stable fuel supply, manageable prices, and adequate protection for all sectors amid ongoing domestic and global challenges,” Economic Planning Secretary Arsenio Balisacan said in a statement after the inflation data.
The central bank could be forced to raise its benchmark interest rate anew — and potentially by a larger, half-point step — to “nip inflationary pressures in the bud” and bring inflation back to the target range of 2-4%, said Michael Ricafort, economist at Rizal Commercial Banking Corp.
However, the BSP may yet think twice before raising borrowing costs, with economic growth already well below potential, and both investment and government spending sluggish, said Nicholas Mapa, economist at Metropolitan Bank & Trust Co.
“The remaining piece of the puzzle now is the first-quarter GDP data that will be out this week,” said Philippine National Bank economist Alvin Arogo. “If growth is significantly weaker than expected, then future rate decisions could be more complicated.”
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