Inflation may hit 5.3% average in 2022 – HSBC

Published August 4, 2022, 5:01 PM

by Lee C. Chipongian

The inflation rate will likely average at 5.3 percent this year, higher than earlier forecast of 4.8 percent, with an expected peak month between July and October, according to British bank HSBC.

HSBC economist Aris Dacanay in a commentary on Thursday, Aug. 4, said the inflation peak for 2022 is in sight with help from the “hawkish” Bangko Sentral ng Pilipinas (BSP), lower electricity prices and slowing global oil price increases.

But the road to hitting this inflation peak “will likely be stretched and bumpy due to base effects and short-term uncertainties, building the case for more hikes,” he said.

Dacanay said they have raised their 2022 inflation forecast from 4.8 percent to 5.3 percent but kept its 2023 forecast at 3.7 percent. This was higher than BSP’s five percent forecast as of June 23. The BSP is also revising this forecast come Aug. 18 when it meets for its next policy actions.

“We forecast the peak of year-on-year inflation to be stretched out and bumpy from July to October 2022. Only then will it likely go down,” said Dacanay.

“In most cases, month-on-month inflation needs to slow down in a gradual manner or fall significantly for year-on-year inflation to peak,” he added.

The bank economist said that from one percent adjustment in June, they forecast month-on-month inflation to slow to 0.7 percent in July or to 5.4 percent from 6.1 percent in June, and then it will “tread downwardly to 0.5% (percent) in August, 0.2% in September, and then 0.1% in October.” The BSP forecasts a midpoint inflation of six percent for July. The government will release the July inflation rate on Friday.

“Month-on-month inflation has to peak first, or at most at the same time as its year-on-year counterpart. And, three factors are beginning to rein it in: oil, electricity, and the Bangko Sentral ng Pilipinas. Global oil prices are beginning to moderate, which has already led to a significant drop in domestic fuel prices, while electricity bills have declined due to refund cuts,” said Dacanay.

“Today to October, nonetheless, is a long period. A lot can still happen and uncertainties cloud the peak. Global oil prices, for instance, can still make an upward or downward turn. There may also be a lag for businesses to adjust their prices. But one thing is clear: the BSP will likely keep on hiking,” he added.

The recent BSP off-cycle rate increase of 75 basis points, which raised the key rate to 3.25 percent has helped stabilize the peso vis-à-vis the US dollar and it has remained below P56. “(This) should tame inflationary pressures from imported goods,” said Dacanay.