Economists expect inflation at over 8%

MANILA, Philippines — Inflation may have accelerated further and likely peaked in December, according to a poll of leading bank economists. However, they expect prices to soften within the first quarter.

Security Bank chief economist Robert Dan Roces said inflation likely accelerated, to 8.4 percent last month after quickening to a 14-year high of eight percent in November from 7.7 percent in October.

Roces said last month’s inflation likely ranged from 8.2 to 8.6 percent as holiday spending led to core upticks, while food and utilities remained high.

He said the Bangko Sentral ng Pilipinas (BSP) may continue with its tightening cycle via more rate hikes this year after raising interest rates by a total of 350 basis points in 2022.

“Inflation is expected to begin tempering in the first quarter on post-holiday consumption slowdown, and the central bank will continue to drive home its battle with inflation by hiking a total of 50 basis points in the first quarter before a long pause as inflation subsides,” Roces said.

Headwinds include global commodity and crude prices that bear watching in the months ahead.

Alvin Arogo, economist at Philippine National Bank, said the BSP’s  Monetary Board may further raise key policy rates by another 75 basis points in the first quarter.

“Regarding possible rate hikes, our baseline view is 50-basis-point hike in February and 25 basis points in March (and this could change depending on Fed rate expectation revisions). After that, we expect a pause in the rate hike cycle. Given the elevated inflation rate for the most part of 2023, however, we believe that any rate cut is most likely only in 2024,” Arogo said.

He sees inflation quickening to 8.3 percent in December and averaging 4.8 percent in 2023.

“Due to the high base effect and our assumption that there would be no new supply shocks in 2023, we estimate that inflation will decelerate starting January 2023. However, the monthly inflation could only be within the BSP’s two to four percent target range in the fourth quarter,” Arogo said.

UnionBank chief economist Ruben Carlo Asuncion said the tightening cycle would continue in the first quarter despite the projected easing of inflation to 4.7 percent in 2023 from 5.8 percent in 2022.

The benchmark interest rate currently stands at 14-year high of 5.50 percent as the BSP matched the aggressive rate hikes delivered by the US Federal Reserve point by point to tame inflation and stabilize the peso.

“BSP may continue hiking but at a slower pace. They will continue to look to the US Fed for domestic monetary policy moves. We may see the terminal rate at six percent ending the first quarter,” Asuncion said.

The Aboitiz-led bank said inflation likely picked up further to 8.3 percent in December from eight percent in November.

China Bank chief economist Domini Velasquez said inflation in December likely rose to a new high of 8.2 percent as consumer prices continue to tick up.

“On the bright side though, month-on-month, we likely saw reduced momentum of 0.5 percent growth in prices compared with October and November’s month-on-month inflation of 0.9 percent,” Velasquez said.

She said slower oil and food prices were observed for the month but items subject to secondary round effects continued to drive inflation.

“This is evident in the expected increase in core prices, which will likely remain above six all though the first half of 2023,” Velasquez said.

Among energy prices, Velasquez pointed out that declines in pump prices were likely offset by increases in electricity and LPG prices.

“For 2023, we expect higher tariffs for both electricity and water to drive supply side inflation. Earlier-than-expected reopening of China will also temper the anticipated decline in oil prices,” Velasquez said.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said inflation could peak until February or exactly a year after Russia started invading Ukraine that led to higher inflation.

The Yuchengco-led bank believes inflation was likely unchanged at eight percent in December.

It said the recent storm and floods that devastated agricultural land in Visayas and Mindanao  could temporarily lead to higher food prices and overall inflation.

“Seasonal increase in demand during the holiday season in December could also lead to some pick up in prices, but expected to seasonally ease after the holidays upon crossing the new year,” Ricafort said.

According to Ricafort, the strengthening of the peso against the   dollar over the past months after slumping to an all-time low of 59 to $1 in October may help ease import costs.