ING sees inflation rate breaching 5% this month

Inflation will likely remain in the five-percent level from September after the August rate hit a high of 4.9 percent due to persistent price pressures, according to an ING Bank economist.

“Inflation (will) likely see price pressures heat up anew in September,” said ING economist Nicholas Mapa. “The price pressures appear to be accelerating at the worst possible time with base effects unfavorable in September,” he added.

Bad weather will contribute to inflation breaching five percent. He also said the prices of fish and meat will continue to be high in tandem with high energy costs while utility companies and retail fuel distributors will add to supply side pressures when they increase their own rates.

With inflation on a high path – though expected by the Bangko Sentral ng Pilipinas (BSP) to increase beyond the two-four percent target – Mapa said the BSP is now “caught in between a recession and an economic depression.”

“The central bank continues to face a dilemma, caught between a rock and hard place as monetary authorities attempt to navigate renewed cost-push price resurgence amidst an economic recession,” he said.

Mapa said another source of price pressure is the recent utility tariff adjustments that could trigger second round effects such as transport fare hike, and the BSP then “may face even more pressure to resort to costly and deadly rate hikes at a time of economic hardship.”

The BSP policy rate has remained at a record low of two percent since November 2020. BSP Governor Benjamin E. Diokno has always said that the Monetary Board’s policy stance will continue to be accommodative until the economy shows more definitive signs of recovery. His latest prediction is the the GDP will return to pre-COVID levels by the first quarter of 2023.

Mapa said a BSP policy rate increase will only plunge the economy further into a recession. “A rate hike at this very delicate stage of recovery could be enough to push the economy into the tailspin that sends the Philippines deeper into recession and ultimately into a full blown depression,” he said. “By then, the Philippines may need to push back its target for when the Philippines, once the high flying economy of the region, will revert to pre-COVID levels of GDP.”

The BSP remains confident that inflation, despite that it is nearing five percent, will still “likely fall” closer to the midpoint of the two-four percent target next year with the timely implementation of non-monetary measures to temper supply-side pressures on food prices.

For this year, the BSP average inflation forecast is 4.1 percent. For 2022 to 2023, the projection for inflation is 3.1 percent.