Inflation Update: Slower December inflation may move BSP to lower rates in June
Despite the decline in inflation amid the holidays, headline inflation may continue to stay above the central bank’s target in 2024.
In line with Metrobank Research’s baseline forecast, 2023 full-year average headline inflation was at 6.0%. We therefore retain our full-year 2024 average local inflation forecast at 4.3%, largely driven by the risk of upward pressure on rice prices.
While our estimates show that headline inflation will remain above the BSP’s target band from the 2nd quarter 2024 onwards, we think that dissipating price pressures in other non-volatile commodity prices as indicated by the move lower in core inflation (from 4.7% in November to 4.4% in December), will make the case for the BSP to consider lowering rates as early as June.
We think that policy rates may not need to be as restrictive as current levels throughout the year, especially if core inflation continues to move lower, as the average difference between the BSP policy rate and domestic headline inflation (from 2009-2023) has been at 28 bps vs. 260 bps currently.
Find out more about our latest inflation report below.
Inflation Update (January 5, 2024)
We maintain our inflation forecasts for 2024 following the recent inflation print for December 2023.Download