Hawkish BSP to keep inflation under control  

MANILA, Philippines — Risks to Philippine inflation remain tilted on the upside, but the headline rate is expected to still be under control with the central bank seen keeping a hawkish stance.

In its latest research brief, think tank Oxford Economics said most Asia-Pacific economies, including the Philippines, would see higher inflation this year, but such levels are unlikely to spiral out of control.

Nonetheless, Oxford economist Theng Tan said upside risks persist such as higher commodity prices stemming from India’s rice export ban and the expiry of the Black Sea grain initiative.

Also adding to the risks are the onset of El Niño, as well as crude oil prices trending upward due to a tight market.

With this, Oxford slightly hiked its inflation forecast by 0.1 percentage point to 5.8 percent for 2023 on the back of higher food and fuel prices.

“We think that the central bank of the Philippines will hold back from turning dovish in its monetary policies anytime soon,” Tan said.

“As of now, headline inflation is still above the central bank’s targets. But overall, we are sticking to our view that inflation won’t spiral beyond manageable levels,” he said.

Headline inflation jumped to 5.3 percent in August from 4.7 percent in July, snapping six months of downtrend.

Inflation picked up anew amid more expensive food items following the recent typhoons, as well as higher transport costs due to oil price hikes.

The Bangko Sentral ng Pilipinas (BSP) is not due for a policy meeting until Sept. 21.

But last month, the BSP left policy rates unchanged at 6.25 percent, marking a third consecutive meeting of pause, as widely expected.

According to Oxford, governments in the region are likely to intervene quickly to prevent a dramatic uptick in food prices by giving subsidies and releasing supply from strategic stockpiles, among others.

“This is because food makes up a large share of the poor’s expenditure, making escalating food prices a politically sensitive issue,” Tan said.

“Alternative methods are not out of reach. The Philippines, for one, has placed a cap on rice prices domestically. We think that the political willingness to keep a lid on food prices is still high,” he said.

President Marcos last month issued an executive order setting the price cap of regular milled rice at P41 per kilo and P45 a kilo for well-milled rice.

Oxford does not anticipate a material threat to Asia’s food supply, believing that the adverse impacts of El Niño are likely to be contained.

The onset of El Niño had raised fears of supply shortages of rice in the region, prompting global prices to skyrocket anew, effectively hurting net rice importers like the Philippines, which has a high weight on rice in the inflation basket.

“However, we think the underlying driver of the current price hike is more a demand than supply issue. India’s move has sparked fears of falling rice stocks, leading to speculative hoarding and panic buying,” Tan said.

Moreover, the think tank pointed out that global rice output slumped only during two of the six El Niño events in the past century and has not always been associated with a sizeable jump in food inflation.

American weather bureau National Oceanic and Atmospheric Administration earlier predicted that the current El Niño’s likelihood of matching the last event’s intensity is only 30 percent.