With the central bank’s projection that inflation rate will still peak in December, most analysts now expect inflation to remain on the high side in the first quarter next year and will only fall below six percent between April to June or during the second quarter.
“While inflation has reached a 14-year high of 8% (in November 2022), we think that it will ease starting January 2023 to around 6% in Q1 (first quarter), and below that by Q2. Lower crude oil and commodity prices will persist as the global recession eases demand,” according to analysts from First Metro Investment Corp. (FMIC) and its research partner, the University of Asia and the Pacific (UA&P).
As for the exchange rate, FMIC-UA&P in its latest “Market Call” report said the peso vis-à-vis the US dollar will continue to be in a depreciation mode in 2023.
The Metrobank-affiliate analysts said despite the local currency regaining lost grounds in November and December at the P55 level from the P57-59 range in September and October, the exchange rate will have more deprecition pressures in the next months.
“The USD-PHP (US dollar-Philippine peso) rate has strengthened in November and December (but) this will prove unsustainable, and so expect renewed weakening starting Q1 2023,” said FMIC-UA&P.
Last week, Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla said that with the peso seem to be stabilizing at the P55-56 level and with the US dollar no longer as strong, the exchange rate is not a source of concern when it comes to its impact on inflation.
Medalla also said inflation will still peak in December and not in January. The negative base effects are working in favor of the January rate, he said. The BSP had thought previously that inflation will peak in October but typhoons derailed this inflation path.
The eight percent inflation in November has brought year-to-date average at 5.6 percent. The BSP forecasts an average inflation of 5.8 percent for 2022, 4.5 percent in 2023 and 2.8 percent in 2024.
The easing global oil and non-oil prices, negative base effects, and the impact of BSP’s 350 basis points (bps) cumulative policy rate adjustments will ensure inflation path will decelerate in 2023 until 2024.
Medalla has often said that BSP’s series of rate hikes are intended to address the risks to the inflation outlook and anchor inflation expectations as the economy recovers from the pandemic
During the Development Budget Coordination Committee (DBCC) meeting earlier this month, the BSP recommended to retain the current medium term inflation target of two percent to four percent for 2023 until 2026.
The BSP said the inflation target range “continues to be an appropriate quantitative representation of the medium-term goal of price stability that is optimal for the Philippines given the current structure of the economy and outlook for macroeconomic conditions over the next few years.”
The BSP expects the economy to sustain its growth momentum in the medium term, especially with the easing of mobility restrictions which will boost business and tourism-related activities, and increase investments.
The BSP is confident that the 350 bps interest rate increases support the medium-term growth outlook “as price stability promotes efficient allocation of resources and preserves the purchasing power of households.”
“Global oil and food prices are expected to moderate over the policy horizon, thereby easing the pressures on prices of domestic goods. However, domestic agricultural production continues to face challenges, particularly from weather disturbances, animal diseases, and global supply constraints. For this reason, the BSP continues to support the government’s implementation of timely non-monetary measures to address supply-side price pressures,” said the BSP.