DESPITE the slowdown in the inflation print in October, the Bangko Sentral ng Pilipinas (BSP) believes commodity prices will remain elevated until 2025.
The BSP said in a statement that inflation in the medium term will be driven by the higher impact of transport charges as well as electricity rates, oil prices, and higher-than-expected minimum wage adjustment in areas outside Metro Manila.
Other factors that could raise inflation include the non-extension of Executive Order No. 10, which lowers tariffs for key commodities and the additional effect of a strong El Niño episode on food prices and utility rates, the BSP said.
“The inflation path in the coming months is still seen to remain elevated, with the 2024 central forecast shifting closer to the upper end of the inflation target range, indicating persistent price pressures. Inflation expectations have also risen further, highlighting the risk of second-round effects,” BSP said. “The risks to the inflation outlook continue to be skewed significantly to the upside for 2023 to 2025.”
Nonetheless, the central bank said the latest inflation print and the third quarter economic performance that will be announced Thursday (Nov. 9, 2023), will be considered in the next policy meeting of the Monetary Board.
“The Monetary Board deems it necessary to keep monetary policy settings sufficiently tight until inflation expectations are better anchored and a sustained downtrend in inflation becomes evident,” the BSP said.
The BSP noted that it remains prepared to undertake further monetary policy action to prevent supply-side pressures on prices from leading to additional second-round effects and dislodging inflation expectations.
It will continue to assess the data as they become available and determine the appropriate policy to bring inflation back within target range without further delay, in keeping with its price stability mandate.
“The BSP is prepared to undertake follow-through monetary policy action as necessary to prevent supply-side pressures on prices from leading to additional second-round effects and dislodging inflation expectations,” it also said in a separate statement.
Earlier, slower inflation may be good news for some but this may also indicate weaker demand, thus, lower economic growth, according to local economists.
On Tuesday, the Philippine Statistics Authority (PSA) reported that inflation slowed to 4.9 percent in October. This is the slowest rate recorded since April 2022 when inflation was at the same rate. (Full story: https://businessmirror.com.ph/2023/11/07/inflation-slows-to-4-9-in-october/)
The inflation rate was also below expectations of most analysts, including the Bangko Sentral ng Pilipinas (BSP) which projected inflation to average 5.1 to 5.9 percent in October. (Full story: https://businessmirror.com.ph/2023/11/02/bsp-now-projects-october-inflation-at-5-1-5-9/)
Ateneo de Manila University (ADMU) economist Leonardo Lanzona told BusinessMirror on the sidelines of the Philippine Economic Society (PES) Annual Meeting and Conference on Tuesday that slower inflation could also mean slower demand necessary to prop up economic growth.
Lanzona said if he were to choose between an economy that had high inflation but fast economic growth and one that has low inflation but slow GDP growth, he would choose the former.
“Essentially you can explain lower inflation because of the slowing down of the economy. But that may not necessarily be a good development because that would mean lesser job opportunities and in general income generation [will be low]. So you might have lower inflation [but] you’re not really better off,” Lanzona explained.
Meanwhile, Socioeconomic Planning Secretary Arsenio M. Balisacan also told reporters on the sidelines of the same event on Tuesday that inflation may have also eased due to base effects, but qualified this later.
It may be noted that inflation was at 7.7 percent in October 2022. At that time, rice prices shot up to 17.9 percent, whereas it has since slowed to 13.2 percent in October 2023.
Balisacan said these significant declines in prices cannot be explained by mere base effects alone. He said there was a real reduction in prices that led to slower inflation in October.