May Inflation Spike Is a Mirage: Why the BSP Won't Hike Rates

Headline inflation likely accelerated to 3.7% in May, but this is a statistical mirage—not a trend reversal. The surge is almost entirely due to unfavorable base effects from last year’s pandemic-era lows and a temporary fuel-price spike, not entrenched domestic demand pressure. Core inflation, which excludes food and energy, is expected to have cooled further, underscoring that the price pressures remain narrow and external. This divergence is critical for the BSP’s next move. While the central bank will acknowledge the headline print, its focus will stay on the moderating core trend and benign inflation expectations. For traders, this means the peso’s recent strength (supported by our AlphaScala Pro’s bullish bias) and the rally in local bonds may continue, as the BSP’s pause on rate hikes is secure. Technically, the QQE MOD Enhanced on the PSEi is flashing overbought but holding its bullish slope, suggesting the rally can extend on foreign inflows chasing yield differentials. However, watch the LRSI + Alpha Filter for a potential short-term dip—a pullback to 5,800-5,850 could be a buying opportunity. Actionable insight: Use any headline-driven peso weakness to add long positions via USD/PHP options, betting the BSP will not hike in Q3. Brokers like COL Financial offer structured USD/PHP strategies that can capitalize on this range-bound volatility.