‘Inflation yet to peak despite easing in February’

MANILA, Philippines — Moody’s Analytics and New York-based GlobalSource Partners believe inflation has not yet peaked in the Philippines despite easing slightly to 8.6 percent in February from a fresh 14-year high of 8.7 percent in January.

In its latest weekly highlights and preview, Moody’s Analytics said the inflation outturn last month was at the lower end of the 8.5 to 9.3 percent forecast by the Bangko Sentral ng Pilipinas (BSP).

“Inflation in the Philippines is uncomfortably strong and has likely not peaked,” it said.

Moody’s Analytics expected inflation to accelerate to 8.9 percent in February from 8.7 percent in January.

The research arm of the Moody’s Group said food and beverages, housing, water, electricity, restaurants, and accommodation services continue to drive headline inflation.

It said core inflation, which excludes selected food and energy items, accelerated to 7.8 percent in February from 7.4 percent in January despite the slight easing of headline inflation.

Inflation rose to 5.8 percent last year, well above the BSP’s two to four percent target range, from 3.9 percent in 2021 due to soaring global oil prices brought about by Russia’s invasion of Ukraine as well as elevated food prices due to supply constraints amid the zero COVID policy in China.

Based on its latest assessment last Feb. 16, the BSP Monetary Board raised its inflation forecasts to 6.1 percent from 4.5 percent for 2023 and to 3.1 percent from 2.8 percent for 2024.

To tame inflation and stabilize the peso that slumped to an all-time low of 59 to $1 last October, the central bank has so far raised key policy rates by 400 basis points.

This brought the benchmark interest rate to a 16-year high of six percent from an all-time low of two percent.

The BSP is widely anticipated to deliver at least another 25-basis point hike in its rate-setting meeting scheduled on March 23 to anchor inflation expectations.

“The odds are high that the country’s monetary policy tightening cycle is not over,” Moody’s Analytics said.

On the other hand, GlobalSource country analyst Romeo Bernardo said that core inflation remained on the uptrend despite the slight easing in headline inflation in February.

Bernardo, former undersecretary of the Department of Finance, said rising core inflation would not change the tightening cycle of the central bank’s Monetary Board.

The New York-based think thank sees inflation further accelerating to 6.5 percent this year from 5.8 percent last year.

Bernardo cited the political dimensions of food shortages that have kept food prices high and the anticipated wage and transport fare adjustments.

He said the projected electricity shortages would likely push up power rates in the summer months.

Bernardo sees the Monetary Board hiking interest rates by at least 25 basis points on March 23.

“We think a 25bp increase in policy rates likely but cannot rule out another 50bp hike,” he said.

The BSP has so far raised key policy rates by 400 basis points, bringing the benchmark interest rate to a 16-year high of six percent from an all-time low of two percent, to tame inflation and stabilize the peso.