Benign inflation seen despite wage hike

DESPITE a recent wage hike order, the Philippines’ full-year inflation is likely to be lower on the back of easing oil prices and recovering domestic food supply, according to Metropolitan Bank and Trust Co. In its latest research note, Metrobank said its sees inflation easing to 4.7 percent this year from an earlier forecast of 5 percent.

“The revision is on the back of expectations that oil prices will remain low amid the still weak global demand and the recovery of domestic food supply as the effect of El Niño dissipates in the coming months. The recently approved wage hike is also not expected to weigh on inflation figures as the increase is considered minimal,” Pauline Revillas, Metrobank research analyst, said.

The Metro Manila wage board last week approved a P22-increase in the daily minimum wage.

This would increase the daily take home pay of Metro Manila workers to P404 from P382 at present.

“Upside risk to inflation would however come from a probable increase in domestic liquidity growth on the back of a surge in investments and as the BSP continually unwinds some of its liquidity-enhancing measures,” Revillas said, referring to the Bangko Sentral ng Pilipinas.

Consumer prices eased further in May to 4.3 percent from the previous month’s 4.4 percent, mainly because of a slowdown in the fuel, light and water items in the Consumer Price Index.

The May figure brought year-to-date inflation to 4.3 percent.

“It looks like the anticipated increase in consumer prices, on the back of the damage on crops brought about by the El Niño phenomenon, was offset by the increased rice importation in January [to cover for rice production losses] and lower oil prices. The flat growth of consumer prices in the first five months of the year point to a full-year average lower than previous market expectations,” Revillas said.

The policy making Monetary Board on June 3 cut its inflation forecast for 2010 and 2011 to 4.7 percent and 3.6 percent, from 5.1 percent and 3.7 percent, respectively.

Metrobank said its benign inflation outlook was likewise took off from a decision by monetary authorities to keep policy rates unchanged despite the robust economic growth in the first quarter.

Philippine gross domestic product (GDP)—which is the value of final goods and services produced in the country—grew 7.3 percent in the first three months of this year.

“The BSP noted that inflationary threats brought about by the strong GDP growth would be tempered by weaker external demand and fiscal concerns in the euro area. Research thinks that developments in the eurozone will still be closely watched and until then the BSP is unlikely to tweak its policy rates. Moreover, the risk of a contagion will push a rate hike further down the line amid the need to support the domestic economy,” Revillas said.

Metrobank is looking at a 25-basis points rate hike in the next meeting of the Monetary Board and another one in the fourth quarter should the European situation improve alongside the expanding Philippine economy. –LAILANY P. GOMEZ REPORTER, Manila Times