‘High inflation to linger until 2025’

Supply-side shocks

MANILA, Philippines — Economists are now expecting a faster rise in prices of basic goods and services in two to three years due to supply-side shocks domestically and overseas, according to results of a survey conducted by the Bangko Sentral ng Pilipinas (BSP).

The central bank’s Survey of External Forecasters for September showed that private economists raised their inflation forecasts to 3.7 percent from 3.5 percent for 2024 and to 3.5 percent from 3.4 percent for 2025.”

“Inflation expectations have increased but remain well within the target range for 2024 and 2025,” the BSP said.

The economists also raised their inflation projections to 5.9 percent from 5.5 percent for this year, well above the central bank’s two to four percent target range.

The BSP said private economists expect inflation to accelerate anew after quickening for two straight months to 5.3 percent in August and to 6.1 percent in September.

“They also anticipate further upside risks to the inflation outlook, due mainly to supply disruptions, particularly from the adverse impact of weather disturbances and trade restrictions,” the central bank said.

Headline inflation averaged 6.6 percent from January to September this year, staying above the target range despite easing for six straight months to its lowest level this year at 4.7 percent last July from a peak of a 14-year high of 8.7 percent last January.

Both the BSP and private economists are expected to further raise their forecasts due to the inflation outturn in September.

After leaving interest rates untouched anew last Sept. 21, the BSP’s Monetary Board raised its inflation forecasts to 5.8 percent from 5.6 percent for 2023 and to 3.5 percent from 3.4 percent for 2024.

It maintained its inflation forecast for 2025 at 3.4 percent.

According to the BSP, the risks to the inflation outlook are still tilted to the upside for 2023 to 2025 and may trigger a possible breach of the inflation target in 2024.

It explained that the potential impact of higher transport charges is among the major risks to the inflation outlook given the fare increase petitions filed by transport groups in August due to elevated oil prices.

In addition, the BSP said higher electricity rates may result in the near term from the Supreme Court decision in July 2022 to nullify the 2014 order of the Energy Regulatory Commission (ERC) to cap Wholesale Electricity Spot Market prices in November to December 2013.

Furthermore, monetary authorities identified other key upside risks to the inflation outlook, such as the impact of El Niño weather conditions on food prices and utility rates, higher-than-expected minimum wage adjustments in areas outside National Capital Region (NCR), and higher domestic prices of key food items facing ongoing supply constraints.

On the other hand, the impact of a weaker-than-expected global recovery remains the primary downside risk to the outlook.

BSP Governor Eli Remolona Jr. already signaled a possible 25-basis point hike in the next rate-setting meeting of the Monetary Board scheduled on Nov. 16.

Remolona said the next rate hike, reflecting the resumption of the tightening cycle, could not be the last especially if upside risks to inflation materialize.

To tame inflation and stabilize the peso that slumped to an all-time low of 59 to $1 in October last year, the central bank raised key policy rates by 425 basis points between May last year to March this year.

As inflation eased due to the aggressive rate hikes delivered by the BSP and the peso strengthened back to the 53 to $1 last February, the central bank maintained a hawkish pause as it kept interest rates unchanged for four straight rate-setting meetings in May, June, August, and September.