IMF: Inflation risks still tilted to upside

The International Monetary Fund (IMF) said that upside risks to the outlook for Philippine headline inflation still persist.

“Risks to the inflation outlook have receded somewhat but remain tilted to the upside,” a representative of the IMF told BusinessWorld in an e-mail.

“Food prices remain vulnerable to adverse supply shocks, and rising geopolitical tensions and recurrent commodity price volatility also pose upside risks,” it added.

Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. earlier said that the balance of risks to the inflation outlook for next year until 2026 has shifted to the upside.

This is primarily due to expectations of higher electricity rates and minimum wages, he said.

Regional wage boards earlier this month approved a hike in the daily minimum wages of workers in Cagayan Valley, Central Luzon and Soccsksargen.

In July, the Regional Tripartite Wages and Productivity Board also approved a PHP 35 minimum daily wage hike for workers in the National Capital Region.

Meanwhile, the IMF sees inflation settling at 3.3% this year and 3% in 2025.

The BSP expects inflation to average 3.1% this year and accelerate to 3.2% next year and 3.4% in 2026.

The IMF said that “decisive monetary tightening and non-monetary measures” have helped tame food inflation in the Philippines.

“Lower commodity prices have helped bring inflation down to within the BSP’s target band,” it said.

Headline inflation eased to 1.9% in September from 3.3% in August. The September print was also the slowest in over four years or since the 1.6% print in May 2020.

Food inflation slowed to 1.4% from 4.2% a month ago. This as rice inflation sharply slowed to 5.7% in September from 14.7% in August and 17.9% last year.

“The BSP reduced its policy rate by 25 basis points (bps) in both its August and October meetings this year, consistent with inflation and inflation expectations returning towards the target,” the IMF said.

Since it began its easing cycle in August, the Monetary Board has reduced policy rates by 50 bps, bringing the key rate to 6%.

Mr. Remolona earlier said the central bank could deliver another 25-bp rate cut at the last policy-setting review on Dec. 19.

Current account

Meanwhile, the IMF sees the country’s current account deficit further easing in the near term.

“The narrowing of the current account deficit in 2024 and 2025 will be supported by lower commodity prices, a gradual pickup in exports, supported by tourism returning towards pre‑pandemic levels and demand for the business process outsourcing sector holding up,” the IMF said.

The IMF expects the Philippines’ current account deficit to settle at 2.2% of gross domestic product (GDP) this year and ease further to 1.8% in 2025 and 1.1% by 2029.

“Inward remittances are also expected to rise slightly,” it added.

In the January-August period, cash remittances expanded by 2.9% to USD 22.22 billion from USD 21.58 billion a year earlier. The BSP expects cash remittances to grow by 3% this year.

“Over the medium term, the current account is expected to be supported by a continued gradual rise in exports,” the IMF said.

“From a saving‑investment perspective, the current account improvement is expected to be driven by a rise in private and public savings, with the latter underpinned by the government’s plans to implement a gradual medium-term fiscal consolidation,” it added.

In the first half of the year, the country’s current account deficit stood at USD 7.1 billion, accounting for 3.2% of GDP.

The BSP expects the current account deficit to reach $6.8 billion this year or 1.5% of GDP. – Luisa Maria Jacinta C. Jocson, Reporter