Inflation forecasts mixed for January

MANILA, Philippines — Inflation likely hovered between 2.6 and three percent last month, a poll of leading economists showed, although most expected it to edge lower, providing relief to consumers after three consecutive months of increase in the consumer price index (CPI).

Sarah Tan, an economist from Moody’s Analytics, said inflation could ease to 2.7 percent in January from 2.9 percent in December last year.

“Price pressures will come from the food, fuel and water categories. Food inflation for January will still capture the toll of late 2024 storms,” Tan said.

“Flood damage knocked food production in the final months of 2024, stoking inflation. These upward price pressures are expected to linger into the opening month of the new year,” she added.

Meanwhile, she said the utilities sector would see mixed movements, with lower electricity generation charges offset by rising domestic fuel costs. Water rates were also revised upwards as of Jan. 1, adding pressure to utility bills throughout the year.

“Across 2025, we expect inflation to remain within the BSP’s two to four percent target range. This will support further monetary policy easing in the Philippines, reducing the pressure on the budgets of households and businesses,” she said.

HSBC ASEAN economist Aris Dacanay likewise sees 2.7 percent inflation in January, citing falling rice prices and easing electricity rates as key drivers of disinflation. However, inflation remains sticky, with fuel costs rising due to a strong US dollar and higher pork prices amid a resurgence of African swine fever.

“The deceleration should have been faster if it weren’t for other non-core components of the CPI basket,” Dacanay said. “Moving forward, we expect the government’s ongoing efforts to manage rice supply to bring overall inflation down in the next few months.”

Lower January inflation would support a 25-basis-point rate cut by the Bangko Sentral ng Pilipinas (BSP) on Feb. 13, especially following the weaker-than-expected gross domestic product (GDP) growth in the fourth quarter.

UnionBank chief economist Ruben Carlo Asuncion projects 2.8 percent inflation for January amid declining costs in housing rental, electricity, water and gas. He expects headline inflation to bottom out at 2.4 percent in February before gradually ticking higher, revising his full-year 2025 inflation estimate to 3.4 percent from 3.2 percent in 2024.

Michael Ricafort, chief economist at RCBC, offers a slightly lower estimate of 2.6 percent, attributing the expected decline to a post-holiday demand slowdown and lower global rice prices.

He said rice, which comprises nine percent of the CPI basket, has become more affordable due to reduced tariffs on imported rice and declining global rice prices.

“Relatively benign inflation within the BSP at two percent levels is still possible up to early 2025, within the BSP’s target of two to four percent. This could justify future policy rate cuts, especially if the US Federal Reserve follows suit,” Ricafort added.

Meanwhile, some analysts expect inflation to inch up in January from a month ago.

PNB economist Alvin Arogo said inflation could increase to three percent.

“Assuming no new commodity price shocks, we believe that the lowered rice tariff, downtrend in Vietnam rice prices and favorable rice base effect should keep inflation within the BSP’s target this year,” Arogo said.

BPI lead economist Jun Neri also forecast a three percent print in January, citing manageable price pressures in transport and utility sectors.

“The January inflation print is crucial as this might influence the policy decision of the BSP on Feb. 13. Aside from the GDP disappointment earlier in the week, on-target headline inflation may open the way for the Monetary Board to ease monetary settings further,” Neri said.

While a rate cut is possible, the BPI economist said there are risks that could limit rate cuts to just 50 basis points this year. The country’s current account deficit is likely to remain wide this year, making the peso more vulnerable to external factors.

“If BSP become too aggressive with easing, the peso could be subject to sizeable exchange market pressure, which, in turn, could fuel inflation expectations,” he said.

Inflation for January is set to be announced on Feb. 5, ahead of the Monetary Board’s Feb. 13 rate-setting meeting.