BSP sees above-target inflation in 2023, 2024

Philippine inflation may average 6.2% this year and 4.7% in 2024 based on the risk-adjusted forecasts of the Bangko Sentral ng Pilipinas (BSP).

Monetary Board (MB) member Romeo L. Bernardo said the risk-adjusted inflation forecasts show above-target inflation for 2023 and 2024.

“For 2023, inflation is seen to settle at 6.2% from our previous September 21 baseline forecast of 5.8%, while average inflation in 2024 will likely reach 4.7% against the baseline of 3.5%,” he said in an economic forum hosted by Security Bank Corp. on Thursday,

Mr. Bernardo delivered the speech on behalf of BSP Governor Eli M. Remolona Jr., who was out of the country.

Results of the BSP’s survey of external forecasters showed analysts see inflation at 6.1% this year before easing to 4.1% in 2024, he said. The survey was conducted from Oct. 9 to 20, with 25 respondents. 

“The latest risk-adjusted forecasts are higher than 2023 and 2024 compared with the baseline forecast in the Sept. 21, 2023 policy meeting due mainly to the higher-than-expected inflation outturn in September, the higher inflation nowcast for October, the approved P1 provisional jeepney fare increase, and the estimated impact of the moderate El Niño conditions on prices,” Mr. Bernardo said.

The staff risk-adjusted forecast for 2023 was made before the release of the October inflation data.

Headline inflation fell to a three-month low of 4.9% in October from 6.1% in September. It was significantly slower than the 5.7% median estimate in a BusinessWorld poll last week and the 5.1-5.9% forecast of the BSP.

However, October marked the 19^th straight month that inflation breached the central bank’s 2-4% target. For the 10-month period, inflation averaged 6.4%.

“The balance of risks to the inflation outlook continues to lean significantly toward the upside due mainly to the potential impact of higher transport charges, electricity rates, international oil prices, and minimum wage adjustments in areas outside (Metro Manila),” Mr. Bernardo said.

Worried about persistent inflationary pressures, the Monetary Board hiked borrowing costs by 25 basis points (bps) in an off-cycle move, bringing the key rate to a fresh 16-year high of 6.5%. The BSP has raised policy rates by 450 bps since May 2022.     

The BSP’s next policy-setting meeting is scheduled for Nov. 16.

Mr. Bernardo said gross domestic product (GDP) would likely moderate over the next few quarters amid waning pent-up demand and tighter financial conditions. 

“The impact of policy rate adjustments takes six to seven quarters. The growth impact of policy rate adjustments, which started in the second quarter of 2022, is projected to peak in the second half of 2024,” he said.

The Philippine economy grew by 5.9% in the third quarter, faster than 4.3% in the second quarter but slower than 7.7% a year earlier.

From January to September, GDP growth averaged 5.5%, still below the 6-7% target of the government. 

“Monetary policy settings will remain tighter for longer until inflationary expectations are reanchored,” Mr. Bernardo said. “The BSP is prepared for further follow-through action as necessary to bring inflation back to a target-consistent path.” 

He also said the BSP continues to call for nonmonetary government measures, which are crucial in addressing supply-side pressures on inflation. — By Keisha B. Ta-asan, Reporter