Inflation unlikely to hit target range

MANILA, Philippines — Inflation is unlikely to ease to the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP) within the year, as consumer prices further accelerated for the second straight month in September, according to Moody’s Analytics.

In its weekly highlights and preview, the research arm of the Moody’s Group said inflation breached six percent to hit a five-month high of 6.1 percent in September after quickening to 5.3 percent in August from 4.7 percent in July, due to soaring rice prices and higher electricity rates.

“It looks increasingly unlikely that headline inflation will reach the BSP’s two to four percent target before the end of 2023,” Moody’s Analytics said.

Inflation stayed above the central bank’s target range as it averaged 6.6 percent from January to September. It peaked at a 14-year high of 8.7 percent in January.

According to Moody’s Analytics, rice was the culprit in September, as it was in August.

Despite the government’s price ceiling on the food staple imposed through Executive Order 39 that took effect on Sept. 5, Moody’s Analytics said rice prices soared by 17.9 percent from a year ago.

Adding to the pain, the research arm said major utility Manila Electric Co. (Meralco) hiked electricity prices in September and global energy prices climbed to year-ago levels.

As inflation moves further away from the BSP’s target range of two to four percent by the end of the year, Moody’s Analytics said the prospect of a rate hike increases.

The BSP emerged as the most aggressive central bank in the region as it hiked key policy rates to tame inflation and stabilize the peso.

The BSP has maintained a hawkish pause since May this year as inflation eased for six straight months, while the peso bounced back to the 53 to $1 handle in February.

BSP Governor Eli Remolona Jr. earlier signaled a possible rate hike in the next rate-setting meeting of the Monetary Board on Nov. 16, which he said might not be the last.

Moody’s Analytics said the Monetary Board would take into account the inflation outturn for October, as well as the gross domestic product (GDP) growth figure for the third quarter of the year.

“We expect them to leave the policy rate at 6.25 percent,” Moody’s Analytics said.

Former BSP deputy governor Diwa Guinigundo, Philippine country analyst at GlobalSource Partners, said in a commentary titled “Green Light for Monetary Tightening in the Philippines” that monetary authorities are likely to keep their hawkish stance.

Guinigundo cited the provisional P1 fare hike approved by the Land Transportation Franchising and Regulatory Board (LTFRB), which brought the minimum jeepney fare to P13 for traditional type and P15 for the modern version.

“With its implementation, the jeepney fare increase could have further inflationary consequences, not the least of which is the possible upset of inflation expectations,” he said.

Guinigundo also noted the P40 increase in the daily minimum wage of workers in private establishments in Central Luzon scheduled to take effect on Oct. 16.

“All these will bolster our initial view that while the BSP could choose to keep its hawkish stance by maintaining its policy rate at 6.25 percent against its latest forecasts of 5.8 percent and 3.5 percent for 2023 and 2024, respectively, these are mounting motivations for an ultimate resumption of monetary tightening,” he said.

With all of these upside risks materializing and the fact that the 3.5-percent forecast for 2024 is uncomfortably inching toward the high end of the two to four percent target, the think tank is now inclined to see a possible resumption of monetary tightening starting next month.

“What could only pull back BSP from deciding to resume another series of policy rate increases is the weak economic growth. This will be an unpopular decision. But the Philippines’ GDP continues to grow while demand pressures remain given the elevated readings of core inflation,” Guinigundo said.