Inflation likely lower in May

LOWER prices of key food items and energy costs, coupled with a stable peso, could have driven inflation down slightly in May, analysts said.

The median forecast in a Manila Times poll was 1.3 percent, lower than April's 1.4-percent result and within the Bangko Sentral ng Pilipinas (BSP) 0.9- to 1.7-percent forecast.

If realized, inflation will have fallen below the government's 2.0- to 4.0-percent target for a third straight month and could prompt monetary authorities to again lower key interest rates during their June 19 policy meeting.

The Philippine Statistics Authority (PSA) will release May inflation data this Thursday, June 5.

Last Friday, the BSP said that cheaper rice and fish, lower oil and electricity prices and a peso

appreciation likely contributed to the downward price pressures in May, offset in part by higher vegetables and meat prices.

It added that the policymaking Monetary Board would “continue to take a measured approach in adjusting the monetary policy stance in line with its price stability objectives conducive to balanced and sustainable growth of the economy and employment.”

HSBC economist Aris Dacanay and Rizal Commercial Banking Corp. chief economist Michael Ricafort both had the lowest forecast of 1.2 percent, which they said would have been caused by lower energy costs and steady peso.

Dacanay said the strong peso — the exchange rate stayed in $55:$1 territory last month — and falling global oil prices would have helped bring down energy costs. He added that while diesel prices were a bit volatile, overall fuel prices were lower now than at the end of April.

“Headline inflation likely remained flat m-o-m (month-on-month), with risks tilted to the downside if the prices of other goods and services adjust alongside easing energy prices,” Dacanay wrote.

“If inflation were to surprise again to the downside, the risk of a back-to-back rate cut in June would likely increase,” he added.

Ricafort echoed this and said the BSP could again lower key interest rates by another 25 basis points in June.

“It is possible for inflation to sustain at below 2.0 percent levels up to August 2025 due to higher base effects that could justify further BSP rate cuts,” he said.

Union Bank of the Philippines chief economist Ruben Carlo Asuncion and Emmanuel Lopez from the University of Santo Tomas Graduate School, meanwhile, said inflation could have edged down to 1.3 percent last month.

“This benign inflation outlook is supported by favorable supply-side dynamics, including stable oil prices, a steady USDPHP (US dollar Philippine peso) exchange rate in the 55–56 range, and continued deflationary input costs from China,” Asuncion said.

“These factors help offset the impact of higher US tariffs,” he added.

Asuncion said that cost pressures remained limited despite risks from possible supply chain issues and high real interest rates, which could increase the chances of a BSP rate cut.

Lopez also said that lower prices of food and agricultural products and lower transport cost could have helped bring down inflation further.

“This is added to the continued appreciation of the peso against the US dollar resulting in the cheaper price of imported products,” he added.

“This will possibly bring down the policy rate by 25 bps in the next policy meeting.”

Moody's economist Sarah Tan, Philippine National Bank economist Alvin Arogo and Pantheon Macroeconomics economist Miguel Chanco, meanwhile, said that inflation likely stayed unchanged at 1.4 percent.

Tan said that food and utility prices would be the main factors keeping inflation below the target range. Arogo said a “sustained fall in rice prices and decline in cost of oil likely kept inflation below the target.”

“Continuation of low inflation, coupled with modest GDP growth in the 1st quarter, is a strong justification for the BSP to reduce the RRP rate further by 25 basis points on June 19,” he added.

Chanco, meanwhile, said that “if we're right, then with inflation being as low as it is — below the BSP's target range — then I expect the [policymaking Monetary] Board to continue easing in June, by a further 25bp.”

“This is especially so with Q1 GDP (first quarter gross domestic product) [growth] falling short of expectations,” he added.

Preliminary data released by the PSA last month showed that the economy expanded by 5.4 percent in the January-March period, below the government's 6.0- to 8.0-percent target for 2025.

The upper end is likely out of reach given global and domestic uncertainties, economic managers have said, but 6.0 percent remains doable.