ECONOMY | Staff Reporter, Philippines

Philippines' inflation spiked to its highest since 2011

Rates hit 4.5% yoy.

According to DBS, May CPI inflation surged to 4.5% YoY, highest since late 2011. Food inflation continues to be the main driver, as it came in at a 5-year high of 6.7% YoY.

The authorities have warned that a prolonged dry spell may sustain the upward pressure on food prices going forward. The secondary impact from higher food prices will put some pressure on prices across the board, maintaining the overall upward trend in CPI inflation.

Here's more from DBS:

At the current pace of growth, there is a good chance CPI inflation may touch 5% YoY in 3Q. That will only widen the differential between inflation and policy rate even further.

While it may be temporary, it is still likely to trigger a reaction from the central bank. The disappointing 1Q GDP print last week may be a factor that pushes the central bank to delay further policy tightening.

But domestic demand remains relatively strong, particularly on the investment front, and upcoming data will continue to support this view.

Following the adjustment done to the reserve requirement rate in the two previous policy meetings, expect the BSP to adjust its key policy rate higher going forward. Look for a total of 50bps rate hikes in 2H14.

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