Inflation for the month of August likely settled above five percent but most analysts forecast it could hit a flat five percent rate instead, higher than July’s actual consumer price index (CPI) of 4.7 percent.

“We are projecting a headline inflation rate for August 2023 of 5.0% year-on-year, or 0.8% month-on-month, with a forecast range of 4.8% to 5.2%,” said Robert Dan Roces, senior economist at Security Bank Corp. “The primary factors contributing to this increase are the prices of fuel and food,” he said.

His forecast is close to the projection range of the Bangko Sentral ng Pilipinas (BSP) which is a low of 4.8 percent and a high of 5.6 percent. 

“While there is a noticeable increase in the price of rice, the overall inflation rate for August 2023 remains within a reasonable area and is significantly lower than the surge experienced earlier this year. The forecast for the fourth quarter is promising, with inflation expected to fall within the BSP target range,” said Roces. 

As of its Aug. 17 Monetary Board policy meeting, the BSP forecasts CPI of 5.5 percent for this year, while for 2024 and 2025 it is 3.3 percent and 3.4 percent, respectively.

Roces said they still see inflation will decline to within the BSP target band of two percent to four percent in the fourth quarter this year – “barring sustained spikes in rice and fuel in the remaining months of 2023; these remain considerable upside risks to the inflation projections.”

The government is scheduled to announce the August CPI rate Tuesday, Sept. 5.

Metrobank subsidiary First Metro Investment Corp. (FMIC) and its research partner, the University of Asia and the Pacific, noted in its August "Market Call" review that inflation “will likely jump in August as crude oil and rice prices have gone much beyond their levels in July.”

“The monsoon rains that came with the two super typhoons (local names of Egay and Falcon), which battered China (especially Beijing), should have only transitory effects on vegetable and fish products. The hype about increased crude oil demand from China will likely peter out,” FMIC said.

Metrobank Research in its own separate August report said their inflation outlook is 5.6 percent average for 2023 and 4.6 percent for 2024. Both forecasts are above-target.

The Ty-led bank expects inflation will continue to decelerate “sans supply shocks” and “looming upside risks emerging from higher rice prices which may feed into the headline inflation by yearend and until the following year.”

“While price pressures have significantly tempered for 2023, we see these upside risks to be a major consideration for the BSP that may push currently stable inflation expectations higher,” it added.

Meanwhile, Metrobank Research revised its GDP target for 2023 of 5.5 percent, lower than the government’s six percent to seven percent target.

Given its outlook for both growth and inflation, the bank expects the BSP policy rate will stay at 6.25 percent for the rest of the year but will be reduced to 5.25 percent in 2024.

The bank noted that consumer spending is expected to continue to moderate in the next quarters but will “normalize toward its pre-pandemic growth trajectory as pent-up demand fades and the impact of previous monetary policy tightening manifests in the economy.”

“Government spending is also projected to accelerate in the succeeding months to catch up eventually on the government’s programmed disbursements which may lend support to growth. However, sluggish imports correlated with sluggish investment spending, which comes from a higher base last year and given the currently high interest rate environment dampen the bank’s growth outlook,” it added.

The country’s GDP only grew by 4.3 percent in the second quarter versus 6.4 percent in the first three months, mainly due to lower government and investment spending.

“Despite more muted growth outlook in 2023, inflation is on its way down this year as past rate hikes continue to work their way through the economy. Moreover, the central bank governor also recently noted that the recent economic growth performance is an indication of a broad-based slowdown in domestic demand pointing to the impacts of the monetary policy tightening already manifesting in the economy. The continued slowdown in inflation which may return within the BSP’s target range towards yearend is anticipated to prompt rate cuts in the following year which will then push growth to rebound in 2024,” said Metrobank Research.

FMIC, on the other hand, expects a minimal contribution from the external sector to GDP since the global economic slowdown “won’t improve significantly in the near future.”

With trade shortfalls and a strong US dollar, this will continue to pressure the peso for the month of September. “(The) balance of trade deficits will remain elevated and, together with the US dollar's renewed strength, should put continued pressure on the peso for the rest of Q3,” said FMIC.

It added that, “after a respite in July, the USDPHP rate has climbed sharply in August as US interest rates will likely remain elevated for longer, and PH’s balance trade should again spike due to the surge in international crude oil prices.”

Metrobank Research expects the exchange rate  – currently at the P56-level -- may still settle at P55.1 this year and P54.4 in 2024.