The Bangko Sentral ng Pilipinas (BSP) expects the inflation rate to fall below four percent this year due to base effects, and is eyeing a lower January 2024 consumer price index (CPI) versus December’s actual 3.9 percent.

BSP Governor Eli M. Remolona Jr. said the base effects will push inflation rates lower for the months of January and February, and for the first quarter on average. They also expect CPI to climb back up after the first three months.

When asked if he sees a below four percent inflation by end-2024, the BSP chief said it is “very likely if you look on a month-on-month basis, it will moderate,” he said in a mix of Filipino and English. “So you have to adjust on base effects," he added.

The central bank will revise the current 4.2 percent risk-adjusted inflation forecast for 2024 on Feb. 15 to below four percent, said Remolona. “(It's) very likely,” he said, citing again, the base effects. 

The Monetary Board's first policy meeting this year is scheduled on Feb. 15. The hawkish BSP has kept a tight policy stance of 6.5 percent since October last year.

Meanwhile, the BSP will announce its month-ahead CPI forecast for January on Tuesday, Jan. 30.

According to Remolona, “I think it will be lower (from 3.9% December) because of base effects.”

BSP Deputy Governor Francisco G. Dakila Jr. said upside risks to inflation continue to evolve, and they now include the Red Sea crisis as another factor to their risk-adjusted inflation forecast. The Red Sea conflict centers on the Houthi rebel attacks which disrupted the trade routes in the Suez Canal. This affects the Philippines because oil imports bound for the country passes through the Suez Canal.

The changing labor conditions in the country is another upside risks that could be more of a risk than expected, according to Dakila.

The slowing growth in the global economy, and this already includes China, is a previously cited downside risk to inflation. The El Nino weather phenomenon – originally estimated to last only until March this year, is now expected to extend until the second quarter 2024.

The biggest upside risks to the inflation outlook is the spillovers such as second-round effects. This is electricity rates, transport fare hikes and wage increases.

As for the economy, Remolona said he has more confidence now that the economy will perform better this year.

“I’m more optimistic about the Philippine economy but less about global economy,” he said late Monday. The government estimates the economy will grow by 6.5 percent to eight percent this year.

Last Dec. 20, the BSP chief said he thinks the country’s gross domestic product (GDP) grew by 5.9 percent in the fourth quarter 2023.

Dakila said they have not revised this growth assumption and they still see 5.9 percent fourth quarter GDP growth. Even at this growth performance, the 2023 GDP may still fall below six percent which is the low-end of the government target range of six percent to seven percent.