The Bangko Sentral ng Pilipinas (BSP) said on Thursday, Oct. 31, that the rate of increase in consumer prices is expected to rise in October after two months of decline, largely due to higher food and fuel prices.
In a statement, the BSP projected that October's inflation rate would likely fall within the range of 2.0 percent to 2.8 percent, which is above September’s four-year-low rate of 1.9 percent.
The inflation rate in September decreased from 3.3 percent in August, marking the lowest rate since May 2020, when inflation was recorded at 1.6 percent.
“Higher prices of food commodities such as vegetables, fruits, and fish as well as the increase in prices of domestic petroleum products and the peso depreciation are the primary sources of upward price pressures for the month,” the BSP said.
Like BSP, the Bank of the Philippine Islands (BPI) also expects inflation to have climbed to a 2.5-percent annual rate in October, still well within the target band.
BPI senior vice president and lead economist Emilio S. Neri, Jr. believes last month’s headline inflation “was likely the lowest for this year due to fading base effects.”
BPI and BSP cited similar factors contributing to the price hikes, including rising costs of essential food items like vegetables, fruits, and fish.
Both also noted that rising oil prices and peso depreciation contribute to inflation.
Even with this expected increase, Neri believes inflation will stay under control over the next year unless there are new supply disruptions.
Potential inflation risks include La Niña and African Swine Fever, though stable commodity prices from China’s slowdown could help offset these pressures, BPI noted.
With this expectation, the Monetary Board (MB) will maintain a cautious strategy to promote price stability that supports balanced economic growth and job creation, the BSP said.
“With inflation expected to remain manageable, a rate cut from the BSP could be on the table in December,” Neri said, aligning with the central bank’s expectation.
However, the economist noted that external factors may impact the BSP's decision, as recent peso depreciation shows market concerns over the pace and potential pause of U.S. Federal Reserve rate cuts.
According to Neri, a strong U.S. employment report or a Republican election win could further weaken the local currency, adding inflation pressure and possibly prompting the BSP to pause rate cuts if the Fed delays its own cuts.
Recent market swings show why it is important to be careful with rate cuts, Neri said.
Though inflation forecasts suggest some leeway for a rate cut, taking bold action may not be strategic given current conditions, he added.
“Global and domestic supply shocks can alter the outlook for inflation quickly, making a cautious approach to rate cuts more suitable to maintain stability,” Neri also said.