The Bangko Sentral ng Pilipinas (BSP) said the January consumer price index (CPI) could hit a low of 2.8 percent versus the actual 3.9 percent inflation rate posted in December 2023 due to lower prices of vegetables and sugar.
If the CPI falls to the two-percent range in January, it will be the first time since October 2020 that inflation was below three percent.
The BSP announced on Wednesday, Jan. 31, that it is forecasting a month-ahead CPI range of a low 2.8 percent to a high of 3.6 percent – a forecast band that is lower than the December rate.
“Higher prices of some agricultural items, like rice, meat, fruits, and fish, along with increased petroleum prices, electricity and water rates, annual adjustment in sin taxes, and the depreciation of the peso are the primary sources of upward price pressures for the month,” said the BSP.
Meanwhile, it added that the lower prices of vegetables and sugar “could contribute to downward price pressures.”
“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,” said the BSP.
The Philippine Statistics Authority will release the latest CPI on Feb. 6.
Base effects is one of the factors for a lower January 2024 CPI forecast. In the same month last year, the inflation peaked at 8.7 percent.
In 2023, the inflation averaged at six percent, way above the government target of two percent to four percent. The closing rate is however spot on against the BSP’s forecast for the year.
Last year’s CPI average was higher than 2022’s 5.8 percent and 2021’s 3.9 percent.
The BSP forecasts that for 2024, the inflation rate could settle slightly above the target range at 4.2 percent, based on its risk-adjusted projection.
But generally, the central bank is hoping the inflation path will close the year below four percent and is maintaining a hawkish monetary policy stance to manage inflation expectations.
BSP Governor Eli M. Remolona Jr. has said that 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 of 2024.
The central bank is expected to revise the current 4.2 percent risk-adjusted inflation forecast for 2024 on Feb. 15 to below four percent.
In the same press chat last week, 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 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, he said.
The further slowdown in the global economy, and this already includes China, is a previously cited downside risk to inflation. The El Niño 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 such as higher electricity rates, transport fare hikes and wage increases.
For the first quarter 2024, the BSP forecasts inflation will go below two percent based on base effects, but come the months of April to July – also because of base effects – inflation is expected to rise above three percent.