El Nino impact poses risk to Philippines’ inflation outlook, says ANZ Research

The impact of El Nino is expected to pose a key risk to Philippines’ inflation outlook, with further likelihood of headline inflation touching around the mid-point of the target band, according to the latest report from ANZ Research.

The country’s annual headline inflation ticked up, for the first time in 6 months, to 3.2 percent y/y in May (from 3.0 percent in April). The annual rate was higher for the ‘food and beverages’ and ‘housing and utilities’ components (which together account for ~60 percent of the basket) but decreased or remained the same for the remaining components.

The core inflation print also ticked up slightly to 3.5 percent y/y in May from 3.4 percent y/y previously. Nonetheless, at 0.2 percent m/m the sequential increase in May was at a slower pace than in recent months (averaged 0.3 percent m/m in the last three months).

Higher food prices can be attributed to a rise in vegetable and fruit prices. Vegetables prices increased 12.6 percent y/y in May, after averaging 4.8 percent for the first quarter of the year. This may reflect the early impact of the El Nino phenomenon.

In a circular released May 3, the National Disaster Risk Reduction and Management Centre estimated crop damage at PHP7.9 billion (vs PHP5.1 billion as of April 18).

"Despite this uptick in annual inflation, we expect headline inflation to stay around the mid-point of the BSP’s target in the coming months. Slowing growth momentum should keep a lid on demand pressures. Furthermore, a high base effect will also come into play in H2. We forecast headline inflation to average 2.9 percent in 2019, as does the Bangko Sentral ng Pilipinas," ANZ Research added in its comments.