There is relatively great developments in the stock market.
As what many Philippine Stock Exchange index (PSEi) market investors may have wished for, the inflation rate for April was only slightly higher at 3.8 percent and settled within the 2 to 4 percent target of government economists for the current year.
For its part, the Bangko Sentral ng Pilipinas (BSP) said even before the latest inflation figure was announced that it will likely cut key interest rates by 25 basis points (bps) once inflation settles around the midpoint of the target range, but will remain “hawkish” at the moment.
These two developments will likely result in the PSEi not falling to the low points seen in April.
To recall, the stock index reached its lowest point for the year on April 16 or at 6,400 points.
The 3.8-percent April inflation rate was higher than the 3.7-percent figure in March, and is the third straight month that the country’s inflation rate increased. However, the April inflation rate was much lower than the 6.6 percent of the same month last year.
Also, in the first four months of the current year, the average inflation rate is 3.42 percent, which is much lower than the 7.87 percent for the January-April 2023 period.
Contributing Groups
The PSA identified the three commodity groups contributing to the April 2024 as follows:
a. Food and non-alcoholic beverages with 59.7 percent share or 2.3 percentage points;
b. Restaurants and accommodation services with 13.7 percent share or 0.5 percentage point; and
c. Transport with 6.2 percent share or 0.2 percentage point.
Undersecretary Dennis Mapa, who heads the Philippine Statistics Authority (PSA), said the uptrend in the overall inflation in April was primarily influenced by the higher year-on-year increase in food and non-alcoholic beverages at 6 percent from 5.6 percent in March 2024.
Food Prices Up
Food inflation in particular rose to 6.3 percent from March's 5.7 percent. Rice recorded a lower inflation rate but remain at elevated levels or at 23.9 percent in April, down from 24.4 percent in March.
Mapa cited rice prices as a major factor for the slightly higher inflation in April. Rice prices still remain over P50 per kilo, or way above the P30 to P40 per kilo a year ago.
The El Niño weather disturbance has been blamed for elevated rice prices in the Philippines and in Southeast Asia, where the country sources much of its imports of the staple.
"What we saw was world prices of rice slightly declined. It peaked last January 2024 and then there's a slight decline last February and March. Just a bit," Mapa said.
"But the trajectory is that world prices are declining for the past two months so this might have impact in the decline of rice prices just a bit," he added.
Uptrend Inflation
Also, the faster annual growth rate of the transport index at 2.6 percent in April 2024 from 2.1 percent in the previous month also contributed to the uptrend of the overall inflation.
In contrast, the PSA said the following commodity groups registered lower inflation rates during the month:
a. Alcoholic beverages and tobacco, 4.9 percent from 6.7 percent;
b. Housing, water, electricity, gas and other fuels, 0.4 percent from 0.5 percent;
c. Furnishings, household equipment and routine household maintenance, 3.1 percent from 3.2 percent;
d. Health, 3.0 percent from 3.2 percent;
e. Recreation, sport and culture, 3.8 percent from 3.9 percent;
f. Restaurants and accommodation services, 5.4 percent from 5.6 percent; and
g. Personal care, and miscellaneous goods and services, 3.5 percent from 3.6 percent.
BSP Move
With the inflation rate for April only slightly higher, investors are awaiting when the BSP will start reducing its benchmark rate that currently stands at 6.5 percent, the highest since 2007.
BSP Governor Eli Remolona Jr., however, said that a reduction of 25 basis points (bps) is on the table once inflation settles around the midpoint of the its target range of 3.5 to 4.3 percent.
"Right now, if we ease, it will just be 25 basis points. But we'll see," Remolona said.
"Anything more than 25 [bps], it's like there's a recession already. It's like a hard landing. But for now, we don't see it coming," he added.
However, the BSP is expected to remain hawkish with the current inflation environment or still favors a high-interest setting to keep inflation in check.
"It seems that inflation movements are hovering around 3.9 percent ...," Remolona said.
"If it's 3.9 percent, it's easy to become 4.1 percent, like that. It's still uncertain. So we remain hawkish," he added.
The BSP's Monetary Board (MB) kept policy rates unchanged during its last meeting on April 8. The next meeting on of the MB is on May 16.
"Looking ahead, the Monetary Board will consider the latest inflation and Q1 (first quarter) 2024 GDP (gross domestic product) outturns, among other information, in its upcoming monetary policy meeting on 16 May 2024," the central bank said.
Besides the BSP’s next move on policy rates, investors are also anticipating the next policy rate announcement of the US Federal Reserve. Like the BSP, the US central bank has not yet made it clear as to when it will start reducing its policy rate.
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