BSP: January inflation could still breach 8%
THE increase in commodity prices could still exceed 8 percent in January on the back of higher electricity and water rates as well as expensive domestic petroleum prices, according to the Bangko Sentral ng Pilipinas (BSP).
On Tuesday, BSP said inflation could settle within the range of 7.5 to 8.3 percent in January. This is still higher than the 8.1 percent posted in December 2022.
“Upward price pressures for the month are expected to emanate from higher electricity rates, approved water rate rebasing, higher domestic petroleum prices, uptick in the prices of key food items, and the annual increase in sin taxes,” BSP said.
Meanwhile, BSP said the reduction in LPG prices as well as the peso appreciation could contribute to easing price pressures for the month.
“The BSP will continue to adjust its monetary policy stance at the necessary pace to prevent the further broadening of price pressures and monitor emerging price developments closely in accordance with the BSP’S price stability mandate,” it added.
Standard Chartered: Inflation to ease
STANDARD Chartered Bank said, however there is reason to believe that inflation will cool this year due to base effects. Standard Chartered said inflation is expected to average 4.8 percent this year and 3.1 percent in 2024.
Nonetheless, the bank still expects the BSP to raise interest rates at least in the first and 50 basis points in the first quarter before cutting rates in the last quarter of the year.
In the second quarter, Standard Chartered Bank said, the BSP is expected to maintain interest rates but implement a 200-basis-point cut in the reserve
requirement ratio (RRR) in the second quarter. Further, in the fourth quarter, the bank expects the BSP to cut interest rates by 50 basis points.
Standard Chartered Bank expects the country’s policy rates to still be at 5.5 percent by the end of 2023 and be lower at 4.5 percent in 2024.
“Our assumption is the inflation starts to moderate to below 4 percent by the end of the third quarter and that will open the window for the BSP to then start cutting rates,” Standard Chartered Bank Economist Jonathan Koh said. “The real real policy rate by then based on our projections could be slightly above 3 percent.”
Local think tank First Metro Investment Corp.-university of Asia and the Pacific (FMIC-UA&P) Capital Market Research also expects inflation to slow this year.
However, it may not drop fast enough and only reach the BSP’S 2 to 4 percent target in the fourth quarter in the light of “elevated crude oil prices and sticky supply issues for food products.”
In the first quarter, the local think tank expects headline inflation to remain elevated at 7 percent. Larger decline in prices may not occur given that the country's food supply remains constrained; rice prices on the rise; and crude oil prices remaining elevated.
“The latest data show a good deceleration, even on a seasonally adjusted basis, and provide a fairly sound basis that inflation has peaked as BSP Governor (Felipe) Medalla has suggested,” FMIC-UA&P Capital Market Research, however, said.
In the World Economic Outlook Update released by the International Monetary Fund (IMF) on Tuesday, global inflation may have already peaked in 2022.
Global inflation is expected to fall to 6.6 percent in 2023 and 4.3 percent in 2024 from the annual average of 8.8 percent in 2022. These expectations remain above pre-pandemic levels of about 3.5 percent between 2017 and 2019.
Prices of fuel and non fuel commodities, the IMF said, have already led to slower increases in inflation in the United States, European and Latin America.
However, core inflation has not yet peaked in most economies and remains well above pre-pandemic levels. Core inflation measures the rise in prices exclusive of food and energy.
“It has persisted amid second-round effects from earlier cost shocks and tight labor markets with robust wage growth as consumer demand has remained resilient,” IMF said.
However, upside risks remain that could prompt central banks such as the BSP to continue tightening monetary policy.
The IMF said these factors include the escalation of the war in Ukraine could lead to higher inflation as well as a faster rebound in China's growth. These could also cause inflation to persist.