ANZ hikes inflation forecast for PH

ANZ Research raised its inflation forecast for the Philippines this year and next year, as it expects inflation to remain above the central bank’s 2-4% target band in the fourth quarter.

In a note, ANZ Research economist Debalika Sarkar and Chief Economist Sanjay Mathur said Philippine inflation is now projected to average 6% this year from 5.3% previously. The 2024 projection is 3.5% from 3%.   

If realized, 2023 inflation will be higher than the 5.8% average last year and the 5.6% forecast of the Bangko Sentral ng Pilipinas (BSP). It would also mark the second straight year that inflation exceeds the BSP’s 2-4% target band.

“The trajectory underlying our revised forecast implies that inflation will stay above the BSP’s 4% tolerance level even in the fourth quarter of 2023 and may return to the target band in the first quarter of 2024,” ANZ Research said.   

Last week, BSP Governor Eli M. Remolona, Jr. said in an interview with BusinessWorld that inflation may return to the 2-4% target range in the first quarter next year, and not in the fourth quarter of 2023 as previously forecasted.   

August inflation unexpectedly accelerated for the first time in seven months, amid a spike in food and transport costs. Headline inflation quickened to 5.3% in August from 4.7% in July.

For the first eight months of the year, inflation averaged 6.6%. This is still higher than the central bank’s revised 5.6% inflation forecast for this year.

ANZ Research said more than half of August inflation came from the sharp rise in the heavily weighted index for food and nonalcoholic beverages.

“The acceleration in food prices was broad-based, reflecting a supply shock from seasonal typhoon activity and the impact of India’s restriction on rice exports,” it said.   

ANZ noted the acceleration of transport inflation is an “early sign of risks stemming from rising global oil prices.” Transport inflation rose to 0.2% in August from -4.7% in July.

The research firm noted that high oil and food prices may also affect inflation expectations, raising the risk of second-round effects.

Meanwhile, ANZ Research said recently implemented rice price ceilings offer temporary relief for consumers, as it can bring down prices of regular rice and well-milled rice by 34% and 24%, respectively.  

“However, price ceilings can stoke inflationary pressure or create shortages if not supported by complementary measures such as adequate monetary support to retailers, farmgate price regulations and/or a reduction of the rice import tariffs from its current 35%,” it said.   

On Sept. 5, the government began implementing a price ceiling for rice nationwide amid a spike in prices and reports of hoarding by cartels.

“In short, the Philippines’ inflation battle is not yet over. Even if rice price caps alleviate some pressure and second-round effects are not accounted for, full-year 2023 inflation is likely to exceed our (previous) baseline forecast of 5.3%,” ANZ Research said.

Meanwhile, Moody’s Analytics said the biggest worry for Philippine inflation is the El Niño weather phenomenon, which can further impact agricultural produce and keep food prices elevated for longer.   

Higher train fares may also put upward pressure on inflation, it said.

“Despite that, we expect inflation to ease over the coming months and touch the higher bound of BSP’s 2% to 4% target by the end of the year,” Moody’s said.   

“Unless inflation across food and energy proves to be stickier than expected, the central bank is likely to hold rates steady for the rest of the year and cut rates from the first quarter of 2024. We look for inflation to average 5.7% in 2023,” it added.   

For ANZ Research, the reversal in August inflation will weigh on monetary policy.   

“For now, we maintain the view that the BSP will hold the policy rate at 6.25% and that a cut is unlikely even in 2024. Our earlier view was the BSP would be able to start cutting the policy rate from the second quarter of 2024,” it said. — Keisha B. Ta-asan