The Bangko Sentral ng Pilipinas (BSP) said the medium-term inflation path will continue to “moderate” as expected, with November inflation already slowing down to 4.1 percent, settling within the BSP’s forecast range of four percent to 4.8 percent.
The BSP said Tuesday, Dec. 5, that the easing of supply-side pressures and negative base effects will likely result in further slowing of the country’s consumer price index (CPI) in the next months. The 4.1 percent November headline inflation is lower compared to October’s 4.9 percent due to subdued prices of vegetables and petroleum products as well as the strong peso vis-à-vis the US dollar.
“The latest inflation outturn is consistent with the BSP’s projections that inflation will likely moderate over the near term due to easing supply-side price pressures and negative base effects,” said the BSP.
It added that the “balance of risks to the inflation outlook still leans significantly towards the upside.”
Meanwhile, upside risks to inflation will continue to come from the following: the potential impact of higher transport charges; electricity rates; international oil prices; and the higher-than-expected minimum wage adjustments in areas outside the National Capital Region.
Downside risks or the factors that could reduce the inflation rates are the impact of a weaker-than-anticipated global economic recovery and government measures against the effects of El Niño weather conditions.
The BSP said that until CPI is within the target range of two percent to four percent, it will keep its hawkish or tightening monetary policy bias.
“The Monetary Board deems it necessary to keep monetary policy settings sufficiently tight until a sustained downtrend in inflation becomes evident,” it reiterated on Tuesday.
“The BSP will continue to monitor inflation expectations and second-round effects and take appropriate action as needed to bring inflation back to the target, in keeping with the BSP’s price stability mandate,” it added.
The next Monetary Board policy meeting is Dec. 14. This will be the last BSP policy meeting for 2023.
Since May 2022, the BSP has raised the target reverse repurchase (RRP) rate by a cumulative 450 basis points (bps) to 6.5 percent.
During its Nov. 16 Monetary Board policy meeting, the BSP decided to keep the 6.5 percent key rate after raising the RRP by 25 bps last Oct. 26 in an off-cycle move.
The latest baseline full-year CPI forecast is 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.
Based on the November 2023 BSP Private Sector Forecasts for Inflation report, analysts still believe CPI will average at 6.1 percent in 2023 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 also 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.