The inflation rate for the first quarter this year is expected to fall within the central bank’s target band due to base effects, analysts from Manulife Investment Management and Trust Corporation (MIM PH) said.

This as the Philippine Statistics Authority (PSA) reported the headline inflation in February stood at 3.4 percent, bringing the average for the first two months of the year to 3.1 percent.

The Bangko Sentral ng Pililipinas (BSP) expects rate of increase in consumer prices to average 2.0 percent to 4.0 percent in 2024.

READ MORE: https://mb.com.ph/2024/3/5/inflation-accelerates-in-february-after-four-months-of-slowdown

The February inflation rate marked the end of a four-month slowdown, starting from 4.9 percent in October last year to a record-low of 2.8 percent in January. This change was driven by the accelerated growth in rice and meat prices observed last month.

However, February figure was lower than the 8.6 percent seen in February 2023, which was the second-highest level of that year.

“We think Q1 2024 inflation will be within the BSP’s target range of 2-4%, mainly due to base effects. The average inflation in Q1 2023 was 8.3%,” said Jean Olivia De Castro, head of fixed income at MIM PH.

For Mark Canizares, head of equities at MIM PH, the February inflation rate is still within the central bank’s target range due to the high base effect and relatively stable overall prices of food and commodities

A base effect refers to the impact of an increase in the price level of last year’s inflation over the corresponding rise in price levels in the current period’s inflation.

Canizares also anticipates the growth in transport prices to slow down during the quarter as most global energy prices, such as crude oil, stabilized in the past twelve months.

Transport prices picked up at a faster pace in February at 1.2 percent, coming from a negative inflation rate of 0.3 percent mainly due to oil and toll facilities.

However, rice prices may continue to spike year on year as the PSA reported rice inflation increased to 23.7 percent last month from 22.6 percent in January.

De Castro, meanwhile, said that inflation may accelerate again in the second quarter as base effects dissipate.

“Easing inflation will be positive for the Philippines' macroeconomic growth as stable prices would give the Bangko Sentral ng Pilipinas room for its policy settings to be more accommodative,” Canizares stated.

“A decline in its policy rates would be supportive of growth. It would create a more conducive environment for corporates to expand businesses while consumer spending can further accelerate. These would be conducive for rerating the consumer names and the banking sector,” he further said.

The central bank maintained its key policy rate at a 16-year high of 6.5 percent to stabilize inflation but is expected to cut down by the second half of the year.