BSP sees inflation below 2% by 2024

PHILIPPINE INFLATION is expected to be below 4% by the third quarter and below 2% by early 2024, the central bank governor said on Monday.    

“We expect to be very successful in bringing down inflation,” Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla said during the Philippine economic briefing in Frankfurt, Germany.

“Month-on-month inflation is normalizing. Because of our very aggressive monetary policy, we do not see shocks propagating self-fulfilling inflation.”

Inflation accelerated to 8.1% in December, from 8% in November and 3.1% in December 2021, amid soaring food prices. This brought the average inflation in 2022 to 5.8%, the highest in 14 years. It was also well beyond the BSP’s 2-4% target range.    

The Monetary Board has raised rates by a total of 350 basis points (bps) in 2022 to tame inflation and support the peso, bringing the policy rate to a 14-year high of 5.5%.   

“Now, we expect that by the end of the third quarter or by the fourth quarter, we are already below 4%. Our models predict that because of high base effects, or as the past event was so high, we will actually be below 2% early 2024,” Mr. Medalla said.

“In other words, by 2024, we will be more or less near the midpoint of our target.”

Mr. Medalla noted the supply shocks last year were quite worse than before, so he expects above-target inflation to last around 16-18 months before normalizing.

“Of course, it’s hard to rule out that there may be another supply shock. We don’t know what will come. But our base line scenario is, if Philippine agricultural shortage problems will be addressed… We’re well into a target-consistent path of inflation. Roughly translated, we’re not there yet, but we’re going there,” he added.

Mr. Medalla has earlier signaled more rate hikes at the BSP’s first two policy meetings this year to bring inflation to the 2-4% target range. The first policy meeting for the year is scheduled on Feb. 16.

Mr. Medalla said one of the biggest factors the BSP considered in adjusting its policy was the pace of tightening by US Federal Reserve, which had caused the peso to significantly depreciate against the US dollar last year.

He noted the peso started to appreciate as the dollar weakened and inflation expectations were managed.

Last year, the US Federal Reserve delivered 425 bps of cumulative rate hikes, which brought its own policy rate to 4.25-4.5%.   

The peso appreciated by 8.2% to close at PHP 54.54 against the dollar on Monday from its record-low close of PHP 59 in Oct. 17, 2022.    

“The global issue right now is inflation, that’s our concern. On the demand side, we are doing everything we can to manage prices of commodities, which means we hope to produce more and increase productivity of the sector,” Finance Secretary Benjamin E. Diokno said during the economic briefing.    

“So, we also are continuing the importation of necessary commodities to ease inflation,” he added.    

The Philippine Statistics Authority is scheduled to release the inflation data for January on Feb. 7. — Keisha B. Ta-asan