BSP: Inflation cooled further in November

MANILA, Philippines — The increase in the prices of essential goods and services likely eased for the second straight month as November inflation is expected to settle within the four to 4.8 percent target range, the Bangko Sentral ng Pilipinas (BSP) said.

The nationwide inflation rate stood at 4.9 percent in October.

If the lower end of the forecast range is achieved, this will be the first time since March last year that inflation falls within the central bank’s two to four percent target.

Headline inflation has been breaching the target in the past 19 months or since April last year. It last fell within the target range at four percent in March 2022.

For November, the BSP said higher prices of most agricultural commodities like rice, fruit, fish and meat items along with adjustments in electricity, LPG and toll rates were the primary sources of upward price pressures.

On the other hand, it said the lower prices of vegetables and petroleum products along with the appreciation of the peso against the dollar contributed to downward price pressures last month.

“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 formulation,” the BSP said.

Inflation averaged 6.4 percent from January to October, well above the central bank’s two to four percent target range.

The rise in the prices of basic goods and services eased for six straight months, hitting a year-low of 4.7 percent in July from a peak of 8.7 percent in January.

However, inflation quickened for two straight months to 5.3 percent in August and 6.1 percent in September before slowing to 4.9 percent in October.

During a forum organized by Bloomberg LP, BSP Governor Eli Remolona Jr. said the central bank would remain “hawkish for a while” after raising key policy rates by a total of 450 basis points since May last year to tame inflation and stabilize the peso.

“If inflation doesn’t go down as projected, we have no choice,” Remolona said. “But what we are watching more than the inflation rate itself is the expectations; if they get de-anchored, we’ll have to do something.”

At its Nov. 16 policy meeting, the BSP left key policy rates untouched due to improving inflation expectations.

While it raised the baseline inflation forecasts to six percent from 5.8 percent for 2023 and to 3.7 percent from 3.5 percent for 2024, it lowered the risk-adjusted inflation projections to 6.1 percent from 6.2 percent for 2023, 4.4 from 4.7 percent for 2024 and to 3.4 percent from 3.5 percent for 2025.

The latest risk-adjusted forecast, which is equivalent to baseline inflation forecasts plus the probability weighted impact of the different upside and downside risks to inflation outlook, shows that upside risks have somewhat dissipated.

 ING Bank senior economist Nicholas Mapa said supply-side shocks have kept inflation above target for all of 2023, prompting an off-cycle hike by the BSP on Oct. 26.

Mapa said inflation would remain susceptible to spikes in 2024 due to an extended El Nino episode and an ongoing dispute with China regarding fishing rights in the West Philippine Sea.

“Shortages of important food items such as rice and fish could translate to inflation remaining above the BSP’s two to four percent target again next year,” Mapa warned.

He said this could prompt the central bank to continue its tightening cycle even if the US Federal Reserve has started cutting interest rates.

“Thus, we could see the BSP pulling the trigger on additional tightening if inflation remains above target and inflation expectations remain unanchored next year,” Mapa said.

According to Mapa, the central bank has reiterated its commitment to bringing inflation “convincingly” back within target, even at the expense of economic growth.

“We believe the BSP will continue hiking even if the Fed begins its easing cycle by mid-2024,” he said.