Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. said the inflation rate for the month of December could fall below four percent, the first time the country’s consumer price index (CPI) will settle within the target range of two percent to four percent after 20 months of hitting above-target.
The baseline CPI dropped to 4.1 percent in November from 4.9 percent in October, bringing the 11-month average to 6.2 percent, still above the two percent to four percent target.
Remolona said the inflation-targeting BSP is “within striking distance” of the target and that he is “crossing my fingers” that December will report a lower inflation number than 4.1 percent.
“We think inflation should be in the target range in the next month or so, and then there’s a base effect and it will go up and maybe exceed the target range (but) hopefully not,” he said.
Remolona also said he is hoping that once inflation settles within the target range, that it will hold and not rise anymore beyond the target band.
“If there are no more new supply shocks, then we expect within target range for December. We don’t see any new supply shocks,” he said in Filipino.
He also said all supply-side price pressures as well as negative base effects have been accounted for so far, and factored in their risk-adjusted inflation forecasts for 2023, 2024 and 2025.
However, upside risks still persist such as higher transport fares, higher electricity and oil prices, and a higher-than-expected minimum wage adjustments in the National Capital Region. The effects of El Niño weather conditions also continue to be a potential supply-side pressure to inflation.
Nonetheless, the BSP expects inflation will settle within the target in the first quarter 2024, but temporarily exceed four percent again in April to July due to base effects and El Nino’s impact to prices of food and electricity.
The BSP will release its month-ahead inflation forecast range for the month of December on Dec. 29. The government will release the actual December CPI first week of January 2024.
Meanwhile, market analysts also anticipate a lower December inflation versus November’s 4.1 percent.
Citi Economist for the Philippines Nalin Chutchotitham in a recent commentary said the BSP seems more confident that inflation and inflation expectations are now better anchored, suggesting that there will be no need for rate hikes.
“However, the BSP is maintaining a cautious stance against upside inflation risks, suggesting a hawkish hold through H1 (first half) 2024. The BSP continues to cite that the balance of risks to the inflation outlook still leans significantly toward the upside, with upside risks still expected from potential higher transport charges, electricity rates, and oil prices,” she said.
“We now expect no more rate hikes,” she added, noting that the “BSP appears satisfied with latest indicators on inflation expectations, while easing of headline and core inflation rates in Oct-Nov also offer comfort, even amidst sustained robust domestic demand.”
“The BSP continues to cite that it would need to see continued decline of inflation to be more confident that inflation is properly under control, and hence maintaining a hawkish tone. In any case, it seems to assess that it can afford to wait for past monetary tightening and the government’s non-monetary measures to work through the economy and aid in the disinflation process,” said Chutchotitham.
Citi Research predicts the BSP will maintain the current 6.5 percent policy rate for the entire first half period next year as inflation “hover close” to four percent in the second quarter 2024.
“We continue to expect the first rate cut to be in Q3 (third quarter) 2024, in line with inflation trajectory which should show a confirmed easing trend by Q3’24 … We maintain end-2024 and end-2025 RRP rate forecasts at 5.50% and 4.50%, respectively,” said Chutchotitham.