ECONOMISTS at the Bank of the Philippine Islands (BPI) believe that inflation has not peaked yet and will continue to rise up until the third quarter of the year, despite the steady figure it hit in April.
In its recently published economic insight, the listed bank’s “Global Markets Economic and Financial Markets Research” said pressures to inflation may not subside until the last three months of 2021.
“Despite inflation being steady, we think it hasn’t reached its peak and it might go up further in the coming months, at least until the third quarter. The swine industry continues to struggle from the ASF [African Swine Fever] and it doesn’t know when this will end,” BPI said.
“Imported inflation might also worsen given the current rally in global commodities such as corn, metals, and oil. However, inflation pressures might subside in the fourth quarter given base effects and if the government is able to address the pork supply shortage,” it added.
The country’s inflation rate surged to above the annual target of 2 to 4 percent at the start of the year. In January, the growth of consumer prices hit 4.2 percent before surging to 4.7 percent in February. Inflation slightly tamed to 4.5 percent in March and remained steady at the same rate in April, the Philippine Statistics Authority (PSA) reported just this week.
In its February monetary policy meeting, the Bangko Sentral ng Pilipinas said average annual inflation for 2021 will likely breach the ceiling of the 2-percent to 4-percent target range. BSP’s assessment shows that inflation will likely average at 4.2 percent in 2021.
As for the implications, BPI said the expectation that inflation will continue to rise in the coming months will allow the BSP to keep its accommodative policy stance only up to the first half of the year.
“The BSP may keep its policy rate steady in the first half of the year in order to continue supporting the economy, especially at this time when the Covid infection rate is still high,” BPI said. “However, supply constraints and elevated oil prices could eventually lead to second-round effects if these are not addressed immediately.”
The bank believes that “to help keep core inflation from consistently breaching the headline target, there may be a recalibration of the policy rate later this year for the monetary authorities in order [sic] to maintain its independence and credibility.” it added.
The local banking giant also said the possibility of higher inflation in the coming months may contribute further to Peso depreciation.
“Declining returns from local investments due to high inflation could force foreign investors to sell, thereby exerting additional pressure on the Peso,” BPI said.
Image credits: Bernard Testa