Philippines: BSP sees inflation’s peak in October, likely offering a reprieve
MANILA, Philippines — Red-hot inflation likely hit is boiling point in October and would start cooling down from there, as price pressures from weather disturbances and transport fare hikes are expected to ease in the coming months, the Bangko Sentral ng Pilipinas said Monday.
Inflation, as measured by the consumer price index, is forecast to settle between 7.1-7.9% this month, the BSP said in a statement.
If realized, the October print would be faster compared to September, when inflation sizzled to a 4-year high of 6.9%. Meanwhile, inflation would approach close to 2009 levels, or the time when the domestic economy was recovering from the impact of the Global financial Crisis, if the upper-limit of the BSP’s projection is realized.
This would also push inflation further away from the government’s 2-4% annual target.
Explaining its October forecast, the BSP cited three pressure points: transport fare hikes, local pump prices and higher agricultural commodity prices.
But the BSP said inflation might have already hit its peak in October and would start easing in the next months. “More importantly, inflation is projected to gradually decelerate in the succeeding months as the cost-push shocks to inflation due to weather disturbances and transport fare adjustments dissipate,” the central bank explained.
Domini Velasquez, chief economist at China Banking Corp., agreed with the BSP’s assessment. But she warned that there are risks to this outlook, including the government’s inability to solve persistent supply bottlenecks.
“Outside any other unanticipated shock, we think that inflation has likely peaked and we expect the rate of growth to slowly decelerate in the coming months until it reaches the BSP’s target of 4% by the second half of 2023,” Velasquez said when sought for comment.
“Key risks would include the inability of the government to address current and potential shortages and possible increase in electricity rates,” she added.
Figuring dead center are expensive fuel prices, which seesawed amid Russia’s invasion of Ukraine and the decision of oil-producing countries to ease production. At the same time, a weak peso is bloating import costs for the Philippines, a net oil importer.
Data from the energy department showed local oil companies implemented four price adjustments in October, two of which were increases.
Likewise, the battery of typhoons that slammed the country in the past months left various agricultural areas in disarray. The government reported that the combined agriculture damage caused by Tropical Depression Maymay and Typhoon Neneng, both of which hit the country earlier this month, had piled up to P594.02 million as of October 24.
These supply issues coincided with a recovery in demand after the national government decided to ease pandemic restrictions and reopen the domestic economy, thereby adding more upward price pressures. But the BSP said inflation this month could be tempered by Meralco’s decision to cut power rates, as well as cheaper LPG and fish prices.
To bring demand in line with diminished supply and tame prices, the BSP has aggressively hiked interest rates this year. Governor Felipe Medalla earlier said the BSP would have to match the ultra-aggressive US Federal Reserve’s rate hikes “point by point” to prop up the weak peso, which has been stoking inflation at home.
“Looking ahead, the BSP will continue to monitor closely emerging price developments to enable timely intervention that could help prevent the further broadening of price pressures, in accordance with the BSP’s price stability mandate,” the central bank said.