The Bangko Sentral ng Pilipinas (BSP) forecasts a below six percent inflation for October from September’s actual 6.1 percent due to cuts in oil prices and selected food items, including rice.

In a statement, the BSP announced that after assessing the latest available data, it expects the October consumer price index (CPI) to be as low as 5.1 percent or as high as 5.9 percent, lower than the actual September turnout.

It noted that the upside factors that could pull CPI higher for the month of October are the higher prices of electricity, LPG, fruits, and fish.

The BSP also attributed the recent adjustment in jeepney fares, along with higher electricity and some food prices as “the primary sources of upward price pressures in October.”

What could bring CPI lower or mid-range of the 5.1 percent to 5.9 percent October forecast are the lower prices of rice, meat, and vegetables during the period. The reduction in the prices of petroleum products could contribute to downward price pressures, said the BSP.

The government will announce the October CPI on Nov. 7.

As of end-September, the average inflation is at 6.6 percent, way above the two percent to four percent BSP target. The headline CPI rose in September to 6.1 percent versus 5.3 percent in August, but still within the BSP’s forecast range at the time of 5.3 percent to 6.1 percent for the month.

In September though, core inflation which excludes selected volatile food and energy items to measure underlying price pressures, eased further to 5.9 percent from 6.1 percent last August.

The BSP said it will “closely monitor developments affecting the outlook for inflation and growth in line with its data dependent approach to monetary policy formulation.”

The Monetary Board, BSP’s policy-making arm, will meet on Nov. 16 to discuss whether or not to do another rate hike as a follow up on the Oct. 26 off-cycle policy action, or to hold the key rate steady at 6.5 percent.

Market forecasts

Economists generally have a similar below six percent forecast for the month of October. One of them, Security Bank Corp. chief economist Robert Dan Roces predicts October inflation will settle at 5.4 percent.

His main reason for the lower estimate is that while elevated food prices is enduring, this was “partially mitigated by a decline in oil costs” in October. “The latest data shows some easing in the cost of essential food items such as rice, meat, and vegetables, as well as reductions in electricity and pump prices this October,” he said.

However, Roces also noted that reduced oil prices could ease inflationary pressures, “they may not be substantial enough to warrant diminished vigilance from the central bank given upside risks.”

In an Oct. 26 report, First Metro Investment Corp. and its research partner University of Asia and the Pacific still think inflation will fall past five percent in November.

“Both MoM (month-on-month) and YoY (year-on-year) inflation should ease for the rest of the year, as crude oil prices hovered around $85/barrel despite the Hamas-Israel conflict and Thai rice prices have begun to slide in September,” said the Metrobank subsidiary.

Economists polled by the BSP raised its inflation forecast for 2023 to 5.9 percent in a latest survey, higher than its August estimate of 5.5 percent amid persistent supply-side pressures.

The inflation expectations for 2024 and 2025 also increased to 3.7 percent from the previous survey of 3.5 percent, and 3.5 percent from 3.4 percent, respectively.

Elevated inflation to persist

On the day the Monetary Board decided on an off-cycle rate hike of 25 basis points (bps), BSP Governor Eli M. Remolona Jr. said it has become urgent to prevent supply-side price pressures from inducing additional second-round effects and further dislodging inflation expectations.

Remolona said the inflation-targeting BSP no longer expects CPI to return to within the two percent to four percent target range this year, and he sees above four percent inflation for the months of March to July in 2024.

The BSP will adjust its current 5.8 percent full-year CPI forecast on Nov. 16 when they meet for the policy rate action. They will also move the 2024 and 2025 inflation estimates of 3.5 and 3.4 percent.

Remolona said the BSP has a risk-adjusted forecast for 2024 of 4.7 percent, up from its previous risk-adjusted forecast of 4.3 percent.

The Monetary Board, in raising the key rate by 25 bps last Oct. 26, has noted that second-round effects “broadened” because of  transportation fare increases and minimum wage adjustments.

Remolona said a rate increase on Nov. 16 will depend on the October inflation and the third quarter gross domestic product (GDP) report which will be released on Nov. 9.

The BSP chief said the GDP is estimated to grow around 4.5 percent for the third quarter. This was slightly better than the actual 4.3 percent second quarter growth.

Roces has a higher GDP growth estimate of five percent for the third quarter. He said this was “largely supported by increased government expenditure” but “nevertheless, we observe a waning consumer demand that may act as a drag on private consumption.”
FMIC-UA&P also project a five percent GDP third quarter growth and a full-year 5.8 percent growth as “economic data show resilience of the economy” such as the employment recovery and government spending.