The Bangko Sentral ng Pilipinas (BSP) said the inflation rate for the month of December could hit a low of 3.6 percent or a high of 4.4 percent amid persistent price pressures particularly on rice and meat.

The BSP on Friday, Dec. 29, announced its month-ahead inflation forecast for December which is lower than November’s actual consumer price index (CPI) of 4.1 percent.

Last week, BSP Governor Eli M. Remolona Jr. said he is “crossing his fingers” that the December CPI will fall below four percent.

The government will release the December inflation data on Jan. 5, 2024.

In a statement, the BSP said the 3.6 percent to 4.4 percent forecast range is based on existing price factors of selected food items as well as electricity rates and oil prices.

“Higher prices of rice and meat are seen as the primary sources of upward price pressures in December. Meanwhile, lower prices for agricultural items such as vegetables, fruits, and fish along with lower electricity rates and petroleum prices are expected to contribute to downward price pressures,” said the BSP on Friday.

“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 decision-making,” it added.

If the December CPI drops below four percent, which is within the BSP target inflation of two percent to four percent, this will be the first time that CPI will settle within the target range after 20 months of above-target level. The peak was 8.7 percent in January.

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.

Remolona said the inflation-targeting BSP is “within striking distance” of the target CPI and that “in the next month or so” it could stay within the target range due to base effects.

Remolona also said he is hoping that once inflation settles within the target range, that it will hold and not rise anymore beyond four percent.

As far as the BSP is concerned, 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.

Presently, the BSP’s key rate remains at 6.5 percent after raising it by 25 basis points (bps) last Oct. 26 in an off-cycle move.

The Monetary Board, BSP’s decision-making arm, has decided to have an ending policy rate of 6.5 percent for 2023 during its last policy meeting for the year on Dec. 14.

The BSP said current monetary policy settings are sufficiently tight to allow inflation expectations to settle more firmly within the target range.

BSP revised its risk-adjusted full-year inflation forecast to six percent for 2023 from the Nov. 16 projection of 6.1 percent. For 2024, the risk-adjusted forecast was also lower at 4.2 percent from 4.4 percent previously. The BSP retained the 3.4 percent risk-adjusted inflation forecast for 2025.

The 2023 and 2024 baseline forecasts are the same as Nov. 16’s six percent and 3.7 percent. However, the 2025 baseline projection is lower from the previous 3.4 percent.

The difference between the two forecasts is that the risk-adjusted inflation is equivalent to the baseline inflation forecast plus the probability weighted impact of the different upside and downside risks to the inflation outlook.

Remolona said he prefers the risk-adjusted inflation forecasts because these numbers take into consideration events or factors that are expected to happen at some point in time. Meanwhile, baseline estimates are based on events that has already transpired.

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 consumer price index (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.

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.