The National Statistics Office (NSO) reported today that headline inflation was steady at 8.5 percent in May as lower year-on-year inflation for food, beverage and tobacco (FBT), clothing, and services offset increases in inflation for fuel, light and water (FLW) and miscellaneous items. The May inflation rate was within the BSP’s inflation forecast for the month. This brought the year-to-date average inflation rate to 8.4 percent. Meanwhile, month-on-month headline inflation declined to 0.5 percent in May from 0.6 percent in April, as average inflation for non-food items outweighed the uptick in FBT inflation.
Of the 8.5 percent headline inflation for May, food accounted for 3.2 percentage points; FLW 1.4 percentage points; and transport and communication 1.7 percentage points (Table 1). These developments indicate that the ongoing pressures on inflation emanate largely from supply-side factors particularly the effects of El Niño on the production of food crops and high fuel prices.
At the same time, core inflation—defined as headline inflation after excluding volatile food and energy items—further slowed down to 7.6 percent in May from 7.8 percent in April. The year-to-date average core inflation rate is 7.9 percent.
Looking ahead, supply- or cost-side factors are expected to remain as the major influence on the path of future inflation. In particular, oil price volatility continues to pose risks to the inflation outlook. In addition, the VAT reform bill and expected adjustments in transport fares are also likely to push the future inflation path upward in the short-term, but these factors should not have a lasting impact on prices. Demand-side pressures also continue to be muted due to cyclical and structural conditions, including high unemployment and weak credit demand, while the risk of exchange market pressure due to declining interest rate differentials has been largely contained by continued strong foreign exchange inflows from OFWs and portfolio investments.
The overall stance of monetary policy going forward will continue to be oriented towards responding to inflationary risks and delivering price stability over the two-year policy horizon. The BSP remains committed to fighting inflation and remains ready to undertake the necessary action in order to respond to the risks to future inflation and inflation expectations.