The Bangko Sentral ng Pilipinas (BSP) warned that the recent plunge of the peso, which has hit new lows, could reignite inflation despite projections that the November rate would settle below the central bank’s target band

The BSP on Friday, Nov. 28, cited “higher electricity and oil prices, as well as the depreciation of the peso,” as factors that “could also contribute to price pressures.”

The central bank projects November inflation to settle within a range of 1.1 percent to 1.9 percent, following the actual 1.7 percent rate in October. The upper bound of the forecast remains below the BSP’s two-to-four percent target band.

The BSP noted that “upward price pressures for the month reflect in part the impact of inclement weather, as prices of rice, fish, and fruits increased,” following a string of typhoons that ravaged the country at the onset of the fourth quarter.

Meanwhile, the lower end of the forecast range would mark the slowest inflation in four months, since the below-one-percent rate recorded in July.

Economist Reinielle Matt Erece of Oikonomia Advisory and Research Inc. said the local currency’s recent slides “definitely play a factor, especially as a significant portion of food items and fuel are imported.” Given that food and fuels hold a large share in the consumer basket, Erece added, they “carry a larger weight on inflation levels.”

Erece also noted, “Inflation may have remained elevated this November, especially as food items and electricity prices went up” during the month.

Other economists agree on the pressure stemming from the peso's depreciation. Rizal Commercial Banking Corp. Chief Economist Michael Ricafort argued the currency is a risk because the Philippines is a net-importing country.

John Paolo Rivera, a Senior Research Fellow at the Philippine Institute for Development Studies (PIDS), elaborated that the country “imports a lot of essentials like fuel, food items, raw materials, and capital goods.”

“When the peso drops, these imports become more expensive, and the higher costs eventually get passed on to consumers. Even if global prices are stable, the foreign exchange (forex) rate alone can push inflation up,” Rivera said.

Rivera warned the risk could escalate if the peso remains weak for months, potentially prompting companies to raise prices to offset higher import costs.

“This is why the BSP continues to highlight the peso as a key upside risk to inflation, especially for transport, electricity, and food,” Rivera said.

Faster price movements could prompt further easing of the key borrowing cost, which currently stands at 4.75 percent.

Despite the risks, BSP Governor Eli M. Remolona Jr. expressed satisfaction with the existing year-to-date inflation rate of 1.7 percent.

He added that the central bank is “not too concerned with the exact non-range target,” a consideration the BSP had earlier contemplated.