The Bangko Sentral ng Pilipinas (BSP) said Friday, Dec. 1, that the consumer price index (CPI) for the month of November will be lower than actual headline rate of 4.9 percent in October due to subdued prices of vegetables and petroleum products as well as the strong peso vis-à-vis the US dollar.

The forecasts range given for November inflation is a low four percent to a high of 4.8 percent, lower than the previous month.

The BSP missed the October CPI turnout last month of 4.9 percent since its forecasts range was much higher at 5.1 percent to 5.9 percent. It is a rare occasion when the central bank is not on point when it comes to its mandate of inflation targeting.

In a statement Friday, the BSP said headline CPI may be on the higher end of the four percent to 4.8 percent forecasts due to the higher costs of some agricultural products in November.

“Higher prices of most agricultural commodities like rice, fruit, fish, and meat items and adjustments in electricity, LPG, and toll rates are the primary sources of upward price pressures in November,” it said.

“Meanwhile, lower prices of vegetables and petroleum products along with the peso appreciation could contribute to downward price pressures,” it added. The peso has remained strong at the mid P55 level for some weeks.

To contain and manage inflation, the BSP has kept a high policy rate of 6.5 percent, the result of several rate hikes accumulating at 450 basis points (bps) since May 2022.

The BSP still has one more monetary policy meeting for this year, on Dec. 14. The market has mixed expectations of how the Monetary Board will decide, either a hold position or a rate increase.

“Going forward, the BSP will continue to monitor developments affecting the outlook for inflation and growth in line with its data dependent approach to monetary policy formulation,” said the BSP.

During its Nov. 16 Monetary Board policy meeting, the BSP left the overnight target reverse repurchase (RRP) rate untouched at 6.5 percent. This is after raising the key rate by 25 bps last Oct. 26 in an off-cycle move.

The latest baseline CPI forecasts is now six percent for 2023, 3.7 percent for 2024 and 3.2 percent in 2025. Meanwhile, the BSP’s risk-adjusted inflation forecast for this year is 6.1 percent, 4.4 percent in 2024 and 3.4 percent in 2025.

Meanwhile, economists surveyed by the BSP expect inflation to fall within the target range in 2024 at four percent average versus the estimated 6.1 percent CPI by the end of this year.

Based on the November 2023 BSP Private Sector Forecasts for Inflation report which was conducted from Nov. 9 to 15, the 21 surveyed economists think inflation will be lower at four percent next year compared to its previous forecast of 4.1 percent in October.

While inflation expectations for 2023 remained steady, the 2024 estimate has decreased. For this year, polled analysts still believe CPI will average at 6.1 percent which was the same forecast they gave in the October survey.

Economists also retained the 3.5 percent inflation projection for 2025. Both 2024 and 2025 estimates are within the government target of two percent to four percent inflation range.

The BSP said generally, analysts expect inflation to remain elevated, with risks to the inflation outlook still significantly skewed to the upside due mainly to supply-side shocks and second-round effects.

Analysts expect inflation to remain elevated but gradually tread the path towards the target range, with risks to the inflation outlook still significantly skewed to the upside due mainly to supply-side shocks and second-round effects.

Based on the survey which was included in the latest Monetary Policy Report, upside risks to inflation continue to be the following: elevated prices of basic goods (particularly oil and food, including rice) due to supply-side shocks attributed mainly to weather disturbances such as typhoons and El Niño; the adverse impact of prolonged geopolitical tensions such as the Russia-Ukraine war and Israel-Hamas conflict; and the higher transport fare and utility rates.

The BSP said majority of the analysts surveyed expect the BSP to keep the policy rate at 6.5 percent until the first quarter of 2024.

However by the end of 2024, most analysts anticipate the BSP will cut the key rate by a moderate 50 to 200 bps, and a “further easing of about 25 to 200 bps in 2025.”