Even with the miniscule reduction in inflation for the month of February, the Bangko Sentral ng Pilipinas (BSP) still remained confident that the consumer price index (CPI) will be below four percent by October this year.
When the January inflation hit 8.7 percent versus 8.1 percent in December 2022, the BSP said that instead of October, inflation’s above-the-target level of two percent to four percent could last until December 2023.
However on Tuesday, March 7, after the government released a lower February CPI of 8.6 percent, the BSP said negative base effects will keep their estimates on point that inflation will be around 3.8 percent in the fourth quarter.
“Inflation is projected to remain above target until early Q4 2023 before decelerating close to the low end of the target range by January 2024 due mainly to negative base effects and the likely decline in global oil and non-oil prices,” said the BSP. “The inflation path continues to be driven by supply-side factors as pressures from elevated global and domestic commodity prices broaden,” it added.
The 8.6 percent February inflation is within the BSP’s forecast range of 8.5 percent to 9.3 percent. This was a relief for the BSP since they missed the January forecast, which is rare. The February turnout is also lower than market forecast consensus of 8.9 percent.
The BSP reiterated Tuesday that the risks to the inflation outlook are still tilted to the upside for this year and in 2024.
“The potential impact of uncertainties in the global food market, increased domestic prices of key food items facing supply constraints, additional transport fare hikes due to elevated oil prices, and higher-than-expected wage adjustments in 2023 are the major upside risks to the inflation outlook. Meanwhile, the impact of a weaker-than-expected global recovery is the primary downside risk to the outlook,” said the BSP.
The BSP’s full-year inflation forecast is an average of 6.1 percent inflation for 2023 and 3.1 percent next year. On a quarterly basis, the central bank forecasts inflation will average at 7.7 percent in the first six months of this year. By the third quarter, it should be at 5.4 percent. By the last quarter of the year, the BSP expects inflation to settle around 3.8 percent.
The BSP’s Monetary Board is scheduled to hold its next policy-setting meeting on March 23.
Last Feb. 16, during its first policy meeting for 2023, the BSP raised the benchmark borrowing rate by 50 basis points (bps) to six percent. The BSP has added 400 bps to the reverse repurchase (RRP) rate since May 2022.
BSP Governor Felipe M. Medalla said last week that if the February inflation is lower than January results, it is possible to increase the RRP rate by just 25 bps on March 23.
“The BSP remains prepared to adjust its monetary policy settings as necessary to prevent inflation expectations from becoming disanchored and safeguard the inflation target over the policy horizon. The BSP also continues to call for the timely and effective implementation of non-monetary government measures to mitigate the impact of persistent supply-side pressures on inflation,” said the central bank on Tuesday.
Meanwhile, Medalla told a recent Lower House hearing on Development Budget Coordinating Committee assumptions that it could be possible that there will be more rate hikes to ensure inflation will be below four percent by October.
Based on BSP estimates, inflation will remain above-the-target for 19 to 20 straight months. Previously, the longest was 15 straight months.