February inflation may have settled at 2.8-3.6% — BSP

Headline inflation could have picked up in February after hitting an over three-year low in January, as prices of key food items, fuel, and electricity rose, the central bank said on Thursday.

Inflation may have settled within the 2.8-3.6% range in February, the Bangko Sentral ng Pilipinas (BSP) said in a statement.

The lower end of the forecast would be unchanged from the January print, which was the slowest since October 2020.

Meanwhile, a faster rate would mark the first time since September 2023 that the consumer price index (CPI) saw a month-on-month uptick.

Still, February inflation would be significantly lower than the 8.6% print recorded a year ago. If realized, February would mark the third straight month that inflation was within the BSP’s 2-4% target range.

“Continued price increases for key food items, such as rice, meat, and fish, along with increased petroleum prices and electricity rates are the primary sources of upward price pressures for the month,” the BSP said.

Prices of regular milled and well-milled rice remained above the PHP 50-a-kilo level in February.

As of Feb. 27, prices of regular milled rice rose to as much as PHP 51 per kilo, higher than PHP 40 per kilo seen a year ago. Prices of well-milled rice also went up to as high as PHP 55 per kilo in February from PHP 44 a kilo last year.

In February alone, pump price adjustments stood at a net increase of PHP 1.05 a liter for gasoline, PHP 1.55 a liter for diesel, and PHP 0.35 a liter for kerosene.

Manila Electric Co. earlier said the overall rate for a typical household increased by PHP 0.5738 to PHP 11.9168 per kilowatt-hour in February.

Meanwhile, the central bank said that lower prices of vegetables, fruits, and sugar may have offset the upward pressures in inflation in February.

“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,” it added.

Makoto Tsuchiya, an economist from Oxford Economics, said in an e-mail that inflation may have climbed to 3.1% in February.

“Despite likely lower price momentum, less favorable base effects will push up the annual rate,” he said. “This will prompt the BSP to stay put at the next meeting, as the central bank carefully assesses where prices are heading to amid geopolitical and weather-related events.”

The BSP is trying to strike a delicate balancing act to support an economy that is expected to grow by 6.5-7.5% this year, while ensuring that any interest rate decisions do not stoke inflation or put pressure on the peso and lead to capital outflows.

The BSP kept the key rate at 6.5% — the highest in nearly 17 years — for a third straight meeting at its Feb. 15 meeting. The BSP was one of the most aggressive in the region, hiking the policy rate by 450 basis points (bps) from May 2022 to October 2023.

“For the year as a whole, we expect inflation to average 3.5%. Risks are tilted towards the upside given the uncertainty over the supply chain disruptions and the extent of the minimum wage hikes,” Mr. Tsuchiya said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said inflation may have picked up to 3% in February and in the coming months due to easing base effects and El Niño risks, which could reduce rice production.

However, barring any supply-side shocks, inflation may stay within the 2-4% target for the whole year.

Meanwhile, the high cost of rice may remain one of the main drivers of inflation this year, ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail.

“We understand that we are now experiencing El Niño, however, we note that other crops appear to have prices either falling or more behaved. If authorities can find a way to lower the cost of rice, we could see inflation well under control,” he said.

Authorities have been wary over the impact of El Niño on the agriculture sector, which is expected to intensify until May.

“As for policy, we expect BSP to remain on hold for as long as the Fed opts to keep rates unchanged and cut as soon as the Fed does,” Mr. Mapa said.

The US Federal Reserve raised its policy rate by 525 bps to 5.25-5.5% from March 2022 to July 2023. Fed members earlier said they want convincing evidence that inflation would sustain its downtrend before they consider cutting borrowing costs.

BSP Governor Eli M. Remolona, Jr. has also said the Monetary Board will likely consider cutting borrowing costs in the second half, but it may need to keep rates tight in the first half amid risks to the inflation outlook.

The Monetary Board will have its second policy review on April 4. — Keisha B. Ta-asan