Inflation likely eased further in March

Headline inflation likely eased slightly in March as prices of rice and fuel further dropped, analysts said.

A BusinessWorld poll of 18 analysts conducted last week yielded a median estimate of 2% for the March consumer price index (CPI).

If realized, this would be slower than the 2.1% in February and the 3.7% clip in the same month a year ago.

This would also be the lowest monthly inflation in six months or since the 1.9% print in September.

The Bangko Sentral ng Pilipinas (BSP) has not yet released its month-ahead inflation forecast for March.

The Philippine Statistics Authority (PSA) is set to release March inflation data on Friday, April 4.

“For March, I’m looking at 2% inflation as food prices will likely continue to slow down, driven by good weather and further softening in rice prices,” Sun Life Investment Management and Trust Corp. economist Patrick M. Ella said.

Security Bank Corp. Vice-President and Research Division Head Angelo B. Taningco gave a March inflation forecast of 2%, citing “low food inflation due to declining rice prices amid monthly price upticks in fish, meat, fruits, and vegetables.”

Rice inflation dropped to 4.9% in February from the 2.3% decline in January. This was the lowest rice inflation since the 5.7% contraction in April 2020.

The PSA had previously said rice inflation could remain in the negative for the rest of the year amid continued interventions by the government.

The government has slashed tariffs on rice imports to 15% starting July 2024.

“The reduction in rice tariffs will help bring prices lower than a year earlier,” Moody’s Analytics economist Sarah Tan said.

The Agriculture department in February declared a food security emergency on rice, which authorized the National Food Authority to release buffer stocks at subsidized prices.

In mid-February, the department also lowered the maximum suggested retail price (MSRP) of 5% broken imported rice to PHP 52 per kilo from PHP 55 previously. This was further slashed to PHP 49 per kilo, starting March 1.

Apart from rice, pork prices are also seen to contribute to the lower inflation print.

“The key driver of the deceleration will come from the food category, especially in the prices of pork and rice,” Ms. Tan said.

She cited the Agriculture department’s move to cap the retail price of pork in March to “insulate the domestic market from rising prices due to the African swine fever that has disrupted supply chains.”

On March 10, the MSRP was set at PHP 380 per kilo for liempo (pork belly) and at PHP 350 per kilo for kasim (shoulder) and pigue (rear leg).

Lower pump prices

Meanwhile, Nomura Global Markets Research analyst Euben Paracuelles noted the decline in energy prices, as well as stable core inflation in March.

In March, pump price adjustments stood at a net decrease of PHP 1.50 a liter for gasoline, PHP 1.10 a liter for diesel and PHP 2.40 a liter for kerosene.

Aris D. Dacanay, an economist for ASEAN at HSBC Global Research, said retail fuel prices fell in March “on the back of softer global oil prices and a stronger peso.”

“Nonetheless, upward price pressures continue in the less-weighted goods and services. Electricity prices were hiked by more than 2%, while the prices of some food items, such as fish and eggplants, steeply rose,” Mr. Dacanay said.

Chinabank Research also said inflationary pressures “stemmed from higher costs of key food items such as meat, fish, and fruits, along with increases in electricity rates.”

In March, Manila Electric Co. (Meralco) raised the overall rate by PHP 0.2639 per kilowatt-hour (kWh) to PHP 12.2901 per kWh from P12.0262 per kWh in February,

Analysts also noted upward price pressures during the month.

Mr. Dacanay said risks to inflation are still tilted to the downside as rice prices still have room to ease.

“Though not our baseline scenario, it is still possible for inflation to breach the lower end target of the central bank’s 2-4% target band,” he added.

Imminent rate cut?

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines (UnionBank), said inflation is expected to ease further.

UnionBank’s nowcast models show that monthly inflation is seen settling below 2% until June.

“Without a doubt, the inflation forecasts with the key assumption that these would be close or in line with actual data, support a BSP rate cut of 25 basis points (bps) — 50 bps sooner than later,” Mr. Asuncion said.

“The fear of materially positive real interest rate setting taking root, posing deflationary threats to spending and growth prospects should prompt imminent BSP rate cuts,” he added.

The BSP’s baseline forecasts for inflation are at 3.5% for 2025 to 2026. Accounting for risks, inflation could reach 3.7% in 2026.

“Looking ahead, with inflation running near the lower end of the BSP’s 2-4% target range, we think the central bank could resume its easing cycle at its April 10 meeting,” Chinabank Research said.

“However, it will likely maintain its cautious messaging given persistent inflation risks and increasing global policy uncertainties,” it added.

Ms. Tan said inflation settling around the “low 2%” will support the case for a rate cut in April.

“Another month of subdued inflation gives BSP more than enough reason to finally pull the trigger on a rate cut in April,” Nicholas Antonio T. Mapa, chief economist at Metropolitan Bank & Trust Co., said.

Both Mr. Paracuelles and Mr. Ella also expect the BSP to deliver a 25-bp cut next month.

The Monetary Board had rescheduled its meeting to April 1 0 from April 3 previously.

“I’m sure that the Monetary Board will take this release into account for its next meeting in April and, if we’re right about it staying near the lower bound of the BSP’s target range, then members probably will have the all clear to go for another 25-bp rate cut,” Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said.

“Of course, events could get in the way, as the planned announcement in Washington of potential worldwide reciprocal tariffs on April 2 could throw more uncertainty into the mix,” he added.

Mr. Taningco said the March CPI will be a crucial data point for the Monetary Board’s decision.

“Other factors to be considered for the upcoming meeting would include global tariffs, international oil prices, and the movement of the US dollar,” he added.

Markets are widely anticipating President Donald J. Trump’s announcement on reciprocal tariffs on April 2.

“The BSP will also have some time to consider the impact of the reciprocal tariffs by the US on the Philippine economy, which is slated to be rolled out from April 2,” Ms. Tan said.

“Further monetary policy easing in the country will help ease the pressure on households’ budgets, which will bring some relief to the domestic economy amid global uncertainties,” she added.

Reinielle Matt M. Erece, economist at Oikonomia Advisory and Research, Inc., also noted that the BSP could cut rates “to avoid faltering consumer demand and to boost economic growth.”

“I expect a 25-bp cut, which is a good compromise to boost market activity and to avoid extreme foreign exchange fluctuations,” he added.

On the other hand, Standard Chartered Bank economist and FX (foreign exchange) analyst Jonathan Koh Tien Wei said the central bank could opt to keep rates steady again amid persisting uncertainties.

“In our view, this uncertainty remains high even as USD-PHP is lower and we are still calling for the BSP to pause in April and only deliver the first rate cut in June,” he said.

“The risk to our view is, however, a 25-bp rate cut in April, given recent comments by BSP Governor [Eli M.] Remolona [Jr]. Key to watch will be USD-PHP movements given concerns over imported inflation and inflation expectations.” – Luisa Maria Jacinta C. Jocson, Reporter