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Economy 2 MIN READ

Inflation Preview: ‘Tis the season to be pricey 

Higher farm and power costs made the holidays pricier.

December 27, 2024By Maria Kaila Balite and Ezra Vidar
A person holding a credit card and tablet

This year’s holiday season may have been more expensive than the last, as the effects of recent rainy days continue to curb farm produce and power distribution companies hiked rates.

Still, Metrobank Research forecasts year-on-year headline inflation in December to stay flat at 2.5% in December. This will bring full-year inflation to 3.2%, settling within the Bangko Sentral ng Pilipinas (BSP)’s target for the first time since 2021.

Expensive ingredients

Last year’s holiday budget may have bought less food this year as the average costs of vegetables, fruits, fish, and meat are higher year-on-year.

Food inflation will likely remain as one of the top contributors to December headline inflation amid lingering supply-side effects of consecutive typhoons in recent months, partly weighed down by the sustained deceleration of rice prices.

Electricity rates still up

Electricity prices continue to rise in December, as major distributors – such as Manila Electric Co. and Davao Light and Power Co. – increased electricity rates amid higher generation charges. The higher charges are due to elevated prices at the Wholesale Electricity Spot Market (WESM), the trading floor for electricity and power supply.

Oil poses risk

Metro Manila pump prices remain lower year-on-year in December, but recent hikes bring current levels closer to that of last year’s. Should price hikes continue, the Philippines may see oil inflation begin to quicken. This is something market players and policymakers should be wary of, considering the vital role of oil in the Philippine economy.

Full year inflation: Naughty or nice?

Considering the lingering effects of recent typhoons on crop supply, we expect December inflation to be at 2.5%. We keep our full-year inflation forecast at 3.2%, well within the Bangko Sentral ng Pilipinas (BSP)’s 2%-4% target and equal to its latest risk-adjusted estimate.

Barring supply-side shocks and considering higher demand following the BSP’s monetary easing, we also forecast inflation to average at 3.2% in 2025.

Target-consistent inflation this year and the next provides room to sustain the BSP’s monetary easing in 2025 to further support consumption and investment. BSP Governor Eli Remolona has said the BSP will continue to loosen monetary settings as long as data is “not too surprising.”

On the exchange rate, we will continue to witness a stronger dollar as Donald Trump assumes the US presidency next year. We forecast the USD/PHP exchange rate to end at 57.9 in 2025.

(Disclaimer: This is general investment information only and does not constitute an offer or guarantee, with all investment decisions made at your own risk. The bank takes no responsibility for any potential losses.)    

MARIA KAILA BALITE  is a Research Officer of the Research and Market Strategy Department, Institutional Investors Coverage Division, Financial Markets Sector, at Metrobank. She holds a Master’s degree in Applied Economics and also majored in Financial Economics for her Bachelor’s degree, both from De La Salle University Manila. Outside of work, her interests include thriller movies, K-dramas, and dogs.   

EZRA VIDAR is a Research Analyst of the Research and Market Strategy Department, Institutional Investors Coverage Division, Financial Markets Sector, at Metrobank. She graduated from the University of the Philippines – Diliman with a degree in BS Business Economics. In her free time, she likes listening to Twice and Taylor Swift.

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