The Bangko Sentral ng Pilipinas (BSP) said the January inflation numbers remain consistent with its expectation that the inflation path will continue to moderate and stay anchored within the government target range of two percent to four percent in the next two years.
“The rice tariff reduction and negative base effects are expected to support disinflation,” it reiterated in a statement on Wednesday, Feb. 5, in reaction to the announced 2.9 percent consumer price index (CPI) for January, which was within its forecast range of 2.5 to 3.3 percent.
Disinflation is when inflation is slowing at an even pace which also indicates a slowdown in the increase of inflation. The impact of lower import tariffs on rice is the main downside risk to the country’s inflation.
The latest CPI could convince the BSP’s policy-making arm, the Monetary Board, to cut its policy rate by another 25 basis points (bps) next Thursday, Feb. 13.
“The BSP will continue to closely monitor the emerging developments and risks to the inflation outlook. This will be discussed in the upcoming monetary policy meeting on 13 February 2025,” said the BSP.
The central bank is taking a measured approach to its gradual monetary policy easing to balance price stability with growth and employment.
“Domestic demand is likely to remain firm but subdued. Private domestic spending is expected to be supported by easing inflation and improving labor market conditions. However, uncertainty in the external environment could temper economic activity and market sentiment,” said the BSP.
It also reiterated its assessment that the balance of risks to the inflation outlook still leans on the upside amid pending adjustments in transport fares and electricity rates.
The BSP’s latest baseline inflation forecast for 2025 is 3.3 percent, while its risk-adjusted projection is 3.4 percent – both are within the government inflation target of two percent to four percent.
In 2024, the inflation full-year average was at 3.2 percent, lower than 2023’s six percent.
After cutting the policy rate by a cumulative 75 bps last year, which brought down the target reverse repurchase rate from 6.5 percent to 5.75 percent, the BSP has signaled that more cuts are likely this year, but not as much as 100 bps.
Based on the December 2024 BSP Survey of External Forecasters, 24 economists estimate an average inflation of 3.1 percent for this year.
The same surveyed analysts also expect that for the first quarter this year, inflation will likely average at 2.6 percent and higher at 2.9 percent for the second quarter.
Generally, economists agree with the BSP that inflation will be low and manageable in the next two years amid broadly balanced risks.
Meanwhile, the central bank’s Monetary Policy Report indicated that from the second half of 2025 to the first half of 2026, inflation will probably increase close to the upper end of the target range due to the lagged impact of higher minimum wages and positive base effects.
By the second half of 2026, inflation could ease closer to the midpoint, supported by a continued decline in global commodity prices, said the BSP.
The BSP said surveyed economists still think the downside risks to the inflation outlook will come from lower rice prices with the implementation of Executive Order No. 62, and lower oil prices.
They also point to an emerging favorable outlook for global oil prices and stable and low core inflation. Core inflation, which does not include food and energy, is the component of inflation influenced by monetary policy.
The main upside risks to inflation continue to be the following: supply disruptions due to geopolitical tensions; adverse weather conditions; the potential spike in electricity rates; higher-than-expected wage adjustments; and protectionist US trade policies.