Inflation likely breached upper 4 percent target in April

MANILA, Philippines — Headline inflation is expected to settle within the range of 3.5 to 4.3 percent in April, from a three-month high of 3.7 percent in March, possibly breaching the upper four percent target of the Bangko Sentral ng Pilipinas (BSP).

The upper end of the forecast would also mark the highest in five months or since the 4.9 percent print in October, snapping four straight months of inflation staying within the BSP’s target range.

“Continued price increases for rice and meat along with higher gasoline prices and the peso depreciation are the primary sources of upward price pressures for the month,” the BSP said in a statement.

Meanwhile, lower electricity rates, the decline in prices of fish, fruits and vegetables as well as the rollback in liquefied petroleum gas prices could offset upward price pressures.

After easing to a three-year low of 2.8 percent in January, inflation picked up to 3.4 percent in February and further to 3.7 percent in March.

The growth in the consumer price index averaged 3.3 percent in the first quarter, well within the central bank’s two to four percent band.

Since it started its interest rate liftoff in May 2022 to fight inflation and stabilize the peso, the BSP’s Monetary Board has raised key policy rates by 450 basis points, making it the most aggressive central bank in the region.

This brought the benchmark interest rate to a near 17-year high of 6.50 percent from an all-time low of two percent. This is the highest since the 7.50 percent recorded in May 2007.

“Going forward, the BSP will continue to monitor developments affecting the outlook for inflation and growth in line with its data-dependent approach to monetary policy decision-making,” the BSP said.

BSP Governor Eli Remolona Jr. earlier said inflation might breach the target and stay above four percent over the next two quarters.

Inflation is expected to return back to within the target in the second half.

Based on its last assessment on April 8, the Monetary Board raised its risk-adjusted inflation forecasts to four percent from 3.9 percent for 2024, but kept its 3.5 percent projection for 2025.

The BSP also hiked its baseline inflation forecast for this year to 3.8 percent from 3.6 percent previously. It still sees baseline inflation at 3.2 percent for next year.

Security Bank chief economist Robert Dan Roces said inflation is likely to settle at 4.1 percent with a range of 3.9 to 4.3 percent in April, mainly driven by higher food inflation and price growth in utilities.

“We expect the BSP to maintain a hawkish stance in the near term as inflation remains above target. However, as inflationary pressures start to ease in the second half of the year, the central bank may have more room to balance its objectives of controlling inflation and supporting economic growth,” Roces said.

The economist also expects the Monetary Board to stand pat on their next policy review on May 16, maintaining a tight monetary policy stance to anchor inflation expectations and prevent second-round effects.

“Once the base effect from food inflation starts fading in August, and inflation begins to moderate, the central bank may have more flexibility to adjust its monetary policy stance, depending on the broader economic conditions,” Roces said.