THE Bangko Sentral ng Pilipinas (BSP) remained confident that the country’s inflation print will decelerate to below 4 percent next year, despite missing their forecast for the month of November.
BSP Governor Benjamin Diokno told reporters on Tuesday that inflation will continue to decelerate in the coming months to within the target band of 2 to 4 percent for 2022 and 2023.
“The November 2021 inflation of 4.2 percent was slightly higher-than-anticipated, settling above the BSP’s forecast range for the month of 3.3 to 4.1 percent…Nonetheless, average inflation is still projected to fall within the government’s target range in 2022 and 2023 as supply-side pressures moderate,” the governor said.
Inflation went down from 4.6 percent in the previous month, nearer to the 4 percent ceiling of the government’s target in November. It was, however, faster than the BSP’s and the market’s expectations for the month.
Diokno also said the risks to inflation for next year have risen, as the potential impact of weather disturbances on the prices of key food items, petitions for transport fare hikes, and the possibility of a prolonged recovery of domestic pork supply could affect inflation.
The governor said global demand amid persistent supply-chain bottlenecks could also push up international commodity prices.
Meanwhile, potential delays in the lifting of domestic containment measures, as well as the emergence of more transmissible Covid-19 variants, could dampen prospects for both global and domestic demand and temper inflationary pressures.
BPI analysis
Bank of the Philippine Islands (BPI) flagged on Tuesday that inflation remains relatively elevated despite favorable base effects.
In their research analysis published on the same day, BPI said inflation at 4.2 percent coming from a high November 2020 base “clearly demonstrates that inflation is not transitory.”
“With demand soaring this quarter and possibly in the coming year due to the improvement in mobility, second-round effects are likely to pick up rather fast. The increase in demand is also expected to exert pressure on the Peso through imports, which in turn may exacerbate the increase in consumer prices,” BPI said.
The bank continues to expect rate hikes from the BSP in the second half of 2022.
“Failure to adjust policy settings before the Federal Reserve is forced to belatedly adjust its asset purchases, and policy rates can translate to bigger adjustment and more market volatility down the road,” BPI said.
In a separate analysis, ING Bank economist Nicholas Mapa also said that while the governor has openly expressed his intention to keep rates low for as long as possible, a rate hike could come in at around the second quarter of 2022.
“Despite the upside surprise for today’s inflation report, we expect the central bank to keep rates unchanged at the last policy meeting for the year on 16 December. We do however expect the BSP to possibly adjust its stance by the second quarter 2022 as growth dynamics will likely improve considerably,” Mapa said.
“Governor Diokno, has indicated in the past that he would like to see more evidence of a ‘solid economic recovery’ before considering a shift in policy stance. We expect the Philippines to post robust growth numbers over the next two quarters, which may be enough to convince Governor Diokno to finally decide to adjust his current accommodative stance,” the economist added.
In his Tuesday statement, Diokno said they continue to “stand ready” to maintain the accommodative monetary policy stance to support recovery “while also guarding against any emerging risks to its price and financial stability objectives.:
The Monetary Board will review its assessment of the global and domestic economic environments for the monetary policy meeting on December 16.