Inflation rates seen on target in Asia by 3rd quarter

MANILA, Philippines — Inflation rates are likely to be back on target in Asia by the third quarter, with fuel prices seen to decline further and food prices expected to ease, according to think tank Oxford Economics.

“Ebbing supply-side shocks and demand-side weakness mean headline inflation is likely to fall sharply in Asia over H1 (first half), returning t=o target almost everywhere by Q3 (third quarter) of this year,” Oxford Economics said in a research brief.

It said inflation in Asia, which reached multi-year highs in most economies last year, was largely due to external supply shocks.

In the Philippines, the headline inflation rate hit a 14-year high of 8.1 percent in December from eight percent in November, primarily due to costlier food items.

The country’s inflation rate averaged 5.8 percent last year, breaching the two to four percent target range of the Bangko Sentral ng Pilipinas (BSP).

Oxford Economics said supply side drivers of inflation are expected to continue to retreat over the coming quarters.

It said energy prices are expected to decline in the short term.

Oxford Economics said food price pressures are also expected to continue to moderate as global food prices have declined sharply from their third quarter peak.

“Admittedly, much of the impetus for food price inflation more recently has come not from the price of groceries, but from rising prices of food away from home (restaurants, caterers) as reopening has gained traction. After this initial bounce back from depressed levels, however, we doubt food service prices will continue surging,” Oxford Economics said.

Even in countries like the Philippines and Thailand, which have been largely affected by supply shocks, Oxford Economics said prices are mostly close to or below their pre-pandemic trend except for food and fuel.

As inflation returns to target, the think tank expects central banks’ worries to start to abate.

“Many have already pared back the pace of tightening alongside the US Fed. And with growth risks rising, falling inflation should give them the space to soon stop tightening altogether. In some cases, that may be sooner than markets or the consensus expect,” Oxford Economics said.

To tame inflation, the BSP raised interest rates by a total of 350 basis points last year, bringing the overnight reverse repurchase rate to a 14-year high of 5.5 percent.

Last week, National Economic and Development Authority Secretary Arsenio Balisacan said the country’s inflation rate may start easing in the coming months.

“Given that the first quarter of the year is usually the harvest season, the planting season for vegetables, and we don’t expect any major natural disruptions during this period, I think the market should recover and I expect that inflation will start to fall in the coming months,” he said.

Source: https://www.philstar.com/business/2023/01/16/2237819/inflation-rates-seen-target-asia-3rd-quarter