UnionBank eyes May inflation rate at 2.4%

UnionBank eyes May inflation rate at 2.4%

Economy

UnionBank Publication

UnionBank Publication

1 Jun 2020, 13:30 — 3 min read

UnionBank Economic Research Unit forecasts May 2020 inflation to post a faster rate of 2.4 percent from last April’s 2.2 percent due to upticks in rice and oil prices.


In a report, UnionBank chief economist Ruben Carlo Asuncion said the price of oil in the international market “have momentarily stabilized”, a turn-around from the situation in the previous month.


Last April, the transport index posted a 6.1 percent print, the lowest drop since October 2015.


Consequently, both rice and fuel prices have been critical drivers of price levels in the economy. Thus, UnionBank’s Economic Research Unit (ERU) expects an uptick of May 2020 headline inflation.



Aside from the external factor, Asuncion said President Rodrigo Duterte has signed Executive Order (EO) No. 113 that increased by 10 percent the 3 percent tariff on the importation of crude oil and refined petroleum products since the beginning of May.


He said farm gate prices of rice continue to increase since last March.


“Consequently, both rice and fuel prices have been critical drivers of price levels in the economy. Thus, UnionBank’s Economic Research Unit (ERU) expects an uptick of May 2020 headline inflation,” he said.


This projection is within the Bangko Sentral ng Pilipinas’ (BSP) 1.9-2.7 percent forecast for the month.


Meanwhile, Asuncion said that with the expected acceleration of domestic inflation rate, monetary authorities “may have to hold off additional monetary policy rate cuts this Q2 2020 as inflationary pressures linger on amidst the COVID-19 pandemic.”


“The BSP may have to consider its other liquidity tools in addressing the needs of the financial system moving forward. However, ERU sees 2020 inflation to average 2.8 percent, still within the BSP’s inflation target,” the report added, referring to the government’s 2 to 4 percent target band until 2022.

Also read: Government loan facility for micro, small enterprises to start accepting applicants in GCQ areas


Since the start of the year, the central bank’s policy-making Monetary Board (MB) has reduced the BSP’s key rates by a total of 125 basis points and bulk of it, totaling 100 basis points, were made last March and April to help buoy the economy from the impact of the global pandemic. 


Article source: PNA

Image source: Freepik

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