By Luisa Maria Jacinta C. Jocson, A reporter
HEADLINE INFLATION is likely to grow faster in December amid higher food and utility prices, but inflation for the whole year is likely to reach the 2-4% target, analysts said.
A BusinessWorld a survey of 13 analysts reported a 2.7% average consumer price index (CPI) reading in December.
This is within the 2.3%-3.1% forecast of the Bangko Sentral ng Pilipinas (BSP) for the month.
If that were to happen, inflation in December would be faster than 2.5% in November but slower than 3.9% in the same month in 2023.
December will also mark the third month in a row that inflation has risen every month.
The Philippine Statistics Authority (PSA) will release data for December and the rest of the year in January. 7.
“We estimate that inflation increased to 2.7% in December from 2.5% last month, which will make the inflation rate for the whole year to 3.2% in 2024,” said Chinabank Research.
“We expect inflation to rise 2.7% year-on-year in December, bringing annual inflation to 3.2%,” said Sarah Tan, an economist at Moody’s Analytics.
Vice President and Head of Security Bank Corp. Angelo B. Taningco said food inflation remained the main contributor to the overall CPI in December.
“The increase in speed from November’s 2.5% will be driven by rising prices in the food and electricity sectors,” said Ms Tan.
He said this was caused by the damage caused by the typhoons that hit the country from late October to November.
“These storms came after the usual storm season that lasted until October. Vegetables and rice are some of the most affected crops as typhoons hit important farming areas,” he said.
“The overall impact on food production will continue to be reflected in December inflation rates,” he added.
The Philippines saw six typhoons enter its area of responsibility in November, according to the Philippine Atmospheric, Geophysical, and Astronomical Services Administration.
“We have seen higher prices of some important food items such as vegetables and fish, as well as higher electricity prices and the cost of LPG and petroleum,” said Chinabank Research.
Mr. Taningco said the increase in electricity prices and the pump price may also have contributed to inflation in December.
In December, the pump price adjustment stood at a total of P1.40 per liter of gasoline and P1.45 per liter of diesel. However, kerosene prices dropped by P0.80 per liter.
Meanwhile, Manila Electric Co. (Meralco) increased the total price by P0.1048 per kilowatt-hour (kWh) to P11.9617 per kWh in December from P11.8569 in November.
Economist for Oikonomia Advisory & Research, Inc. Reinielle Matt Erece also noted the impact of holiday spending on December inflation.
“The slight increase in the December CPI may have resulted from seasonal demand especially for broad foods, especially ‘noche buena’ foods, which would have had cyclical increases,” Ruben Carlo O. Asuncion, economist at Union Bank of the Philippines. , Inc., said.
A FULL YEAR WITHIN THE TARGET
Despite the sharp decline in inflation in December, inflation for the whole year appears to be firmly within the 2-4% target.
“We are still confident that despite this increase, inflation for the whole year will be around 3.2% which is still within the BSP’s target,” said Mr Erece.
The BSP expects inflation to reach 3.2% in 2024.
It also expects inflation to remain within target from 2025 to 2026. Its baseline and risk-adjusted forecasts for both years appear to fall within the 2-4% band.
“Looking ahead, we expect inflation to remain within the BSP’s target range of 2-4%, supported by low prices of imported rice,” Chinabank Research said.
“The inflation rate in 2024 is in the middle of the inflation target of the BSP, and we expect the inflation rate in 2025 to be 3% lower at this time,” said Mr. Asuncion.
This will help pave the way for further fiscal reform in 2025, he added.
“In the coming months, inflation is likely to continue at 2% levels until early 2025, or within the BSP’s inflation target range of 2-4%, which would justify further cuts by the BSP,” Rizal Commercial Banking Corp. Chief economist Michael L. Ricafort said.
Mr. Taningco said the central bank is likely to use a “slow pace” of rate cuts.
By 2024, the BSP has delivered a total of 75 basis points (bps) of rate cuts since it began its easing cycle in August.
“We expect the easing of monetary policy to continue in 2025. However, the BSP will be prudent in looking at global developments that may further increase inflation and reduce the peso’s strength,” Ms Tan said.
In 2024, the peso closed at its record low of P59 three times (on Nov. 21, Nov. 26, and Dec. 19.) as the dollar rallied on bets on a rate cut by the US Federal Reserve amid concerns of money.
Economist of Sun Life Investment Management and Trust Corp. Patrick M. Ella said he predicts a total rate cut of 75 bps with an increase of 25 bps by 2025.
“We are now looking at three BSP cuts (75 bps) instead of the earlier forecast of four cuts (100 bps). We do not see them cutting with the Fed, but they are in line with the development of domestic data,” he said.
The central bank will likely continue to cut rates in “baby steps” as it carefully monitors inflation risks, he added.
DANGERS
Analysts similarly pointed out risks that could delay the BSP’s rate-cutting cycle.
“Firstly, the prospect of tariffs from the US looks high, and the pace of normalization of global interest rates may be slow. This will play into the BSP’s decision to continue easing monetary policy (in 2025),” said Ms Tan.
“However, there are high risks on the horizon, especially in the uncertain effects of the Trump administration on local currency increases including overseas Filipino workers (OFW) remittances (by 2025),” Mr. Asuncion said.
Mr. Erece also noted the need to consider the pace of US Federal Reserve policy.
“This rate of inflation is within their goals and the need to improve economic growth may be a sign of the central bank to continue reducing their monetary policy,” he said.
“However, it is in the BSP’s interest to closely monitor the Fed’s stance on their monetary policy.”
The Fed cut rates aggressively in September, November and December, but at its last meeting it marked fewer rate cuts through 2025.
“It is possible that the Fed may switch to a hawkish stance as inflation continues and if Trump continues his economic reforms such as increased spending, leading to lower rates,” Mr Erece said.
“This could cause further appreciation of the US dollar and may push the BSP to readjust its monetary policy to prevent the peso from rapidly depreciating through smaller or smaller devaluations,” he added.
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