April inflation poised for third straight decline — DBS

CONSUMER price inflation in April is estimated to have slowed for a third straight month due to base effects, easing food and energy prices, and aggressive monetary tightening by the central bank, DBS Bank Ltd. said.

In a May 2 report, DBS Bank Chief Economist Taimur Baig and Senior Economist Ma Tieying said inflation will likely slow to 6.8% year on year in April, lower than the 7.6% in March.

“Factors behind the year-on-year deceleration include continued feed-through of favorable base effects, alongside easing of global commodity prices and spill-over to food and energy inflation, and the impact from the aggressive monetary tightening over the past year,” it said.

The bank’s inflation estimate for April is lower than the 7% median estimate of 14 analysts in a BusinessWorld poll last week.

It is also within the 6.3-7.1% forecast range issued by the Bangko Sentral ng Pilipinas (BSP) for the month.

The inflation rate in April 2022 was 4.9%.

If the April 2023 reading comes in as projected, it would mark the 13th consecutive month of inflation exceeding the BSP’s 2-4% target range.  

To tame inflation, the BSP raised borrowing costs by 425 basis points (bps) since May 2022, bringing the key policy rate to 6.25%, its highest level in nearly 16 years.

BSP Governor Felipe M. Medalla has said that the Monetary Board will consider keeping policy rates at 6.25% at its meeting this month if inflation further slows in April.

“Our view for a higher terminal rate, therefore, faces downside risk,” the bank said.

DBS expects Philippine benchmark interest rates to peak at 6.75% this year, suggesting that they have a further 50 bps to rise.

It also expects the BSP to cut the key policy rate to 5.75% in third quarter next year and further to 5.25% in the fourth quarter of 2024.

“We will also be closely watching the month-on-month print, given (Mr.) Medalla’s April 10 comments that a ‘zero or negative (month-on-month) inflation’ may also support the case for a rate pause,” the bank said.

DBS Bank projects inflation to average 5.8% this year, before easing to 3.2% in 2024.

The 2023 projection is lower than the BSP’s full-year inflation forecast of 6%, while the estimate for 2024 is higher than the central bank’s 2.9%. 

Mr. Medalla has said inflation will return to the 2-4% target range by the fourth quarter.

The April inflation report will be released on May 5. The Monetary Board is scheduled to meet for the third time this year on May 18. — Keisha B. Ta-asan