Philippines Studies Measured Response as Inflation Surges

(Bloomberg) -- The Philippine central bank is studying the appropriateness of a measured response to inflation, Governor Nestor Espenilla said, after data showed consumer prices rose at the fastest pace in more than five years in March.

The inflation rate rose to 4.3 percent from a revised 3.8 percent in February, the Philippine Statistics Authority said in a statement on its website on Thursday. That exceeded the median estimate in a Bloomberg survey of seven economists and was the quickest since at least January 2013, based on data provided by the statistics agency.

The coming task for policy makers is to “carefully evaluate the appropriateness of a measured policy response to firmly anchor inflation expectations,” Espenilla said in a mobile-phone message on Thursday. The appropriate policy response will allow orderly adjustment in market rates and in the peso, he said.

Bangko Sentral ng Pilipinas has resisted calls to tighten monetary policy and last month forecast annual inflation to return to the target range of 2 percent to 4 percent in 2019. Price pressure is mounting after a tax law that raised levies on fuel, sugary drinks and cigarettes was implemented in January.

Click to read: Philippines Raises 2018 Inflation Forecast to 4.5% Y/y

“The inflation data today tells you that consumer price rise is broader than originally thought,” said Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore. “Rate hikes are on the cards probably as early May. The case for BSP to hike sooner rather than later is strengthening.”

Rate Debate

The peso fell 0.1 percent to 52.1 per dollar as of 10:34 a.m. in Manila, taking its decline this year to 4.2 percent.

Philippines Studies Measured Response as Inflation Surges

The majority of economists surveyed in February and March forecast the benchmark rate will be raised from a record-low 3 percent this quarter. But there is still debate on the rate outlook.

“The central bank has been very clear in saying that inflation will still be within their target range” and may not move its key rates in the immediate future, said Jill Singian, a government bond trader at Bank of the Philippine Islands in Manila.

ING Groep NV sees higher prices this year but forecast rates will remain unchanged as inflation will slow.

“The central bank won’t raise rates,” said Joey Cuyegkeng, a senior economist at ING in Manila. “It’s all in line with the central bank’s expectations that inflation will continue to rise and eventually will turn more moderate.”

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