In the absence of additional price pressures or supply shocks, the Bangko Sentral ng Pilipinas (BSP) expects inflation rate will remain within the target range of two percent to four percent in 2024 after ending this year with an estimated six percent to 6.1 percent.
BSP Governor Eli M. Remolona Jr. said, “this is what we hope will happen – we hope it will settle within the target range for the rest of 2024.”
Based on the latest BSP estimates, the consumer price index (CPI) will likely stay even below the target band or in the two percent-level in the first months of 2024 before again rising to above four percent by middle of next year, or around June.
“We will see the latest numbers, the new estimates before next week,” said Remolona. He is referring to the days before the Dec. 14 Monetary Board policy meeting where they will announce the latest baseline projections for 2023, 2024 and 2025, as well as the risk-adjusted forecasts.
“The latest numbers suggest early 2024 (when) the inflation numbers should be quite low, below three percent maybe, and then the base effects will push it up to maybe four percent roughly in the middle of the year and then it should settle within the (target) range,” according to Remolona.
Meanwhile, Remolona said they will consider the baseline CPI as on the downtrend when it has reported more than one decline. During the time of former BSP chief Felipe M. Medalla, he used to say three to four months of CPI decline is already a positive sign that inflation will continue to decelerate.
“If inflation is within the target range for one month, that’s not enough. It has to look like it will stay there (within the target) and then we can start to consider not being hawkish,” said the current BSP chief.
He added, “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.”
In November, CPI fell to 4.1 percent versus 4.9 percent in October. This was the second month in a row that inflation has reported a decline after a huge drop from 6.1 percent in September to 4.9 percent in October.
After the November CPI was released, the BSP commented that the medium-term inflation path will continue to “moderate” as expected, and that the easing of supply-side pressures and negative base effects will likely result to further slowing of inflation due to lower prices and stronger peso vis-à-vis the US dollar.
As for the balance of risks to the inflation outlook, this continue to be on the upside.
The known upside risks to inflation are: 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.
During its Nov. 16 Monetary Board policy meeting, the BSP decided to keep the 6.5 percent key rate after raising the policy rate 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.
The BSP has also started announcing a risk-adjusted inflation forecast which for this year is 6.1 percent, 4.4 percent in 2024 and 3.4 percent in 2025.
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. The risk-adjusted inflation forecasts are higher than the baseline forecasts.
As of end-November, the average inflation rate is at 6.1 percent.
Remolona has signaled that next week, on Dec. 14, for its last policy meeting for the year, they could decide to either retain the 6.5 percent key rate or to increase the overnight rate, following an off-cycle rate hike last Oct. 26.