The Bangko Sentral ng Pilipinas (BSP) said on Tuesday, Jan. 31, that inflation for the month of January may be lower at 7.5 percent from December’s actual 8.1 percent, or higher at 8.3 percent because of costlier power rates during the period.
“The BSP projects January 2023 inflation to settle within the range of 7.5 to 8.3 percent. Upward price pressures for the month are expected to emanate from higher electricity rates, approved water rate rebasing, higher domestic petroleum prices, uptick in the prices of key food items, and the annual increase in sin taxes,” said the BSP.
BSP Governor Felipe M. Medalla said in December and as late as last week that inflation has already peaked in December when it hit a 14-year high of 8.1 percent, bringing the average rate to 5.8 percent in 2022, above the government target of two percent to four percent.
In projecting a low of 7.5 percent inflation for January, the BSP cited the recent cuts in LPG prices and the strong peso vis-à-vis the US dollar “could contribute to easing price pressures for the month.” The peso has is currently comfortable at the P54 level. The LPG, however, has resumed its increase in prices this week.
“The BSP will continue to adjust its monetary policy stance at the necessary pace to prevent the further broadening of price pressures and monitor emerging price developments closely in accordance with the BSP’s price stability mandate,” said the BSP.
Medalla has already announced his preference in December last year to increase the key rate on Feb. 16 and March 23, by 25 basis points (bps) to 50. The next Monetary Board policy meeting is on Feb. 16.
Last year, the BSP benchmark rate was raised by a cumulative 350 bps or from two percent to 5.5 percent. The reverse repurchase or the borrowing rate is the primary monetary policy instrument of the BSP, while other tools are open market operations, term deposits, the BSP securities facility, and other liquidity management facilities.
From its last policy-setting meeting which was Dec. 15, the BSP forecasts 2023 inflation to average at 4.5 percent and 2.8 percent in 2024.
Medalla has said that inflation will slow down in the next months after peaking in December due to several factors including negative base effects.
The easing global oil and non-oil prices, negative base effects, and the impact of BSP’s 350 bps cumulative policy rate adjustments will ensure inflation path will decelerate in 2023 until 2024. The primary objective of the BSP's monetary policy is price stability that will be supportive of growth, and to achieve a low and stable inflation at all times.
The BSP said the risks to the inflation outlook continue to be on the upside for 2023 but remains broadly balanced for 2024.
Medalla said the country’s inflation is largely a supply-shock driven inflation. It started rising above the target in April last year as the Ukraine war which started on Feb. 28, 2022, impacted on both global and local prices. As inflation remained elevated, the BSP tightened its monetary policy to reanchor inflation expectations.
However, Medalla said the pressure to match US rate increases are lower compared to 2022, especially since the US dollar has weaken and the peso has appreciated back to the P54 level from its lowest exchange rate of P59 in October.
Meanwhile, with the signal of two pending rate hikes, the BSP policy rate could be in the six percent to 6.25 percent level by March.