March inflation may pick up amid high food prices

MANILA, Philippines — Inflation likely accelerated for the second straight month in March, mainly driven by high rice prices, prompting the Bangko Sentral ng Pilipinas (BSP) to keep borrowing costs unchanged at its next policy review in April, analysts said.

This developed as Finance Secretary and Monetary Board member Ralph Recto warned that inflation would remain bumpy and likely to breach the central bank’s two to four percent target range at some point.

Economist Makoto Tsuchiya of Oxford Economics said headline inflation may pick up to 3.5 percent in March from February’s 3.4 percent due to unfavorable base effects.

“Possible upside risks to our forecast include higher food prices including rice whose price remains elevated, as well as meat which shows a rising trend,” he said.

BSP Governor Eli Remolona Jr. said inflation would likely quicken to 3.9 percent in March. If realized, it would mark the second straight month that inflation went up on a monthly basis.

Still, inflation would be significantly lower than the 7.6 percent last year. It would also be the fourth straight month that the consumer price index (CPI) stayed within the central bank’s two to four percent target.

However, National Economic and Development Authority Secretary Arsenio Balisacan said inflation would likely slow down in March, especially as the proposed minimum wage adjustments have yet to be enacted into law.

“We think the BSP will remain on hold at the April meeting, given the inflation path remains volatile and risks are tilted to the upside. The first cut will likely come in June, after the US Fed starts to cut and there’s more assurance on the steady disinflation path,” Tsuchiya said.

The Monetary Board has kept interest rates on hold after a 25-basis-point, off-cycle hike in October 2023. The central bank has tightened borrowing costs by 450 basis points between May 2022 and October 2023, bringing the key rate to a near 17-year high of 6.50 percent.

Security Bank chief economist Robert Dan Roces said inflation may likely breach the two to four percent target in the second quarter, as earlier telegraphed by the BSP, due to upward pressures such as rising energy prices, supply chain issues and possible wage-price spirals.

“The Monetary Board will dissect the data in April, considering underlying trends and external pressures. Public inflation expectations and the need to balance price stability with economic growth will also be on their radar,” Roces said in a Viber message.

The second monetary policy setting of the BSP Monetary Board for this year has been moved to April 8 from April 4.

ING Bank Manila senior economist Nicholas Mapa also believes inflation could be higher in March.

“March could still likely see high inflation for important items such as rice while transport related prices and electricity could also contribute to inflation close to the upper bound of BSP’s inflation target,” he said.

Data from the Philippine Statistics Authority showed rice inflation rose 23.7 percent in February from the previous month’s 22.6 percent. It marked the highest since the 24.6 percent recorded in February 2009.

Based on its baseline forecast, the BSP expects inflation to average 3.6 percent this year after quickening to six percent in 2023 from 5.8 percent in 2022.

On the sidelines of the Economic Journalists Association of the Philippines Induction late Thursday night, Recto maintained that he is expecting a bumpy road ahead for inflation.

Recto shares Remolona’s expectation that the headline rate may have jumped to 3.9 percent in March, closing in to the upper end of the target band.

The DOF chief also did not discount the likelihood of inflation breaching four percent in the coming months.

“There’s always that possibility but for the year, it will still be within the two to four percent. It’s going to be a bumpy road. It may breach [four percent] but it will still go back to target,” Recto told reporters.

Nonetheless, the Finance chief expects interest rates will be higher for longer as inflation remains elevated.

“Remember that you still have disruptions in the supply chain because of geopolitical tensions. There’s reshoring, onshoring, refiguring out the supply chains globally so inflation will be higher for longer,” Recto said.

As such, Recto emphasized that a rate cut can still be expected but probably less than what was initially projected.

He said two adjustments could be penciled in for 25 basis points each as the market is initially expecting up to four rate cuts this year for a total of 100 basis points.

“Both less in magnitude and frequency,” Recto said. — Louise Maureen Simeon