Inflation up, truck ban lifted?

PHILIPPINES - In Brief 05 Jun 2014 by Romeo Bernardo

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May inflation rate reached 4.5%, above the 4.2% market expection and on the higher range of the BSP's 3.9-4.7% forecast. The BSP attributed the higher price increase to "tight domestic supply conditions" including "higher spoilage during the summer months" that led to higher food prices. A few analysts are betting that with inflation on the rise and with the BSP Governor reiterating that "the room to keep rates steady has narrowed", monetary authorities will start raising policy rates when they meeton June 19. We attach a low likelihood to a rate increase at this time even though supply side pressures (food, oil and transport) may keep inflation elevated in the short-term. Rather, we think that the BSP will likely pause from further tightening moves after the two successive 1ppt increase in bank reserve requirement implemented in April and May, intended to signal its vigilance in combating excessive risk taking. Meanwhile, we received word from senior cabinet officials that a solution to the disruptive truck ban in the city of Manila is in sight, allowing freer movement of cargoes that have now clogged the port. Aside from the holdup in goods exports that reportedly placed tens of thousands of ecozone employees on forced leaves / shorter working hours, the ban has also affected the operations of other manufacturers that rely on prompt deliveries of imported raw materials and pushed up logistical costs for businesss. All this is bound to hurt 2Q14 economc performance.