Inflation settles within govt target in Jan; BSP still wary

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HEAPER vegetables and sugar may have led to an inflation rate in January that is well within the government’s targets, according to the Bangko Sentral ng Pilipinas (BSP).

In its month-ahead inflation forecast, BSP said inflation could settle at 2.8 percent to 3.6 percent. BSP Governor Eli M. Remolona Jr. earlier told reporters inflation in January is expected to be slower due to base effects.

It may be noted that in 2023, inflation in January was at 8.7 percent, the highest in 15 years or since November 2008 when inflation clocked in at 9.1 percent (https://businessmirror.com.ph/2023/02/07/inflation-surges-to-8-7-in-jan-highestsince-nov-2008-psa/).

“Lower prices of vegetables and sugar could contribute to downward price pressures. Going forward, the BSP will continue to monitor developments affecting the outlook for inflation and growth in line with its data-dependent approach to monetary policy decision-making,” BSP said.

However, the BSP said there are risks that could raise inf lation. These include higher prices of certain agricultural items such as rice, meat, fruits and fish.

Data from the Philippine Statistics Authority (PSA) showed the average food inflation rate was 8 percent in 2023, higher than the recorded annual average food inflation rate of 6.1 percent in 2022. It averaged 5.5 percent in December 2023.

Rice prices were also elevated and posted an increase of 19.6 percent in December 2023. Other commodities such as “meat and other parts of slaughtered land animals” saw an inflation of 0.2 percent in December 2023.

Prices of fruits and nuts were also higher by double digits (12.2 percent) while fish and other seafood posted an inflation of 4.8 percent. All these commodity groups saw increases on a monthly basis.

“(Upside risks include) increased petroleum prices, electricity and water rates, annual adjustment in sin taxes and the depreciation of the peso are the primary sources of upward price pressures for the month,” BSP said.

Non-monetary measures

EARLIER, in an open letter to President Ferdinand R. Marcos Jr., Remolona stressed the importance of non-monetary measures to address inflation this year.

He said the BSP’S risk-adjusted forecasts indicated that inflation may settle above the target at 4.2 percent in 2024 before slowing to about 3.4 percent in 2025.

However, risks remain skewed to the upside this year and next year. These upside risks include higher transport charges, increased electricity rates and higher oil and domestic food prices.

Investments in agriculture and infrastructure are potent non-monetary measures that can help bring down inflation, according to Monetary Board members.

Monetary Board Member Bruce J. Tolentino told the Businessmirror on Monday that efforts to boost spending for agriculture, infrastructure, power, trade and government operation will greatly contribute to bringing down inflation.

Based on the Consumer Price Index (CPI) for A ll Income Households, these have a significant impact on inflation. Food has the highest weight of 34.78 percent while the housing, water, electricity, gas and other fuels segment has a weight of 21.379 percent.

Investments “in crucial sectors such as infrastructure and agriculture” are lacking, Tolentino told this newspaper. It is, he stressed, “crucial to ensure that the expenditures are those that truly increase productivity.”