PH inflation still not out of the woods — BSP

The Philippines is still not out of the woods in terms of inflation, but government efforts to tame the current levels have been paying off, the Bangko Sentral ng Pilipinas (BSP) said Wednesday.

The country has continued to report inflation above its target range of 2.0% to 4.0% for all of the months of 2024 so far, with the November print recorded at 4.1%, the slowest in 20 months since March 2022’s 4.0%.

"We're still not out of the woods when it comes to inflation… We're just trying to be ready for the worst," BSP Governor Eli Remolona Jr. said in a press conference in Manila City.

The Monetary Board of the BSP last week lowered its risk-adjusted inflation outlook for 2024 to 4.2% from 4.4%, while keeping the 2025 outlook unchanged at 3.4%. It also downgraded its 2023 outlook to 6.0% from 6.1%.

Inflation is expected to settle within the target range in the first quarter of 2024, mainly due to base effects after the 8.7% print in January, 8.6% in February, and 7.6% in March this year.

It is then expected to be above the target range in the second quarter of next year due to the El Niño, which is projected to contribute 0.02 percentage points to inflation for 2024.

"In terms of the El Niño impact, we model it as a pass-through in food prices and also energy and power rates, so those are the main challenges," BSP Department of Economic Research officer-in-charge Dennis Lapid said in the same briefing.

Food inflation clocked in at 5.8% in November, marking a deceleration from 7.1% in October. Rice inflation saw an annual increment to 15.8% from 13.2%, while eggs, milk, and other dairy products saw an increase of 7.6% from 7.5%.

El Niño impact

State weather bureau PAGASA officially announced the start of El Niño in July. The World Meteorological Organization (WMO) expects this to last until at least April 2024, with the National Irrigation Administration (NIA) projecting a 1.5-million metric ton (MT) loss in palay or unmilled rice.

To tame inflation, the BSP has already hiked policy rates by a cumulative 450 basis points since May 2022, bringing the benchmark policy rate to 6.5%, the highest in 16 years since it was kept at 7.5% in May 2007.

The current levels have brought down the real interest rate—the nominal interest rate minus inflation—to 2.4%, which Remolona described as "low" for a country like the Philippines.

"Palagay ko leading tayo ngayon (In my opinion, we're leading now). On our side, we're ahead, but there's still one quarter to go," Remolona said, with the year-to-date inflation at 4.1% as of November.

"I think we're looking at many numbers. If most of the numbers point to the right direction, including expectations, they really settle into the comfortable range around 3% for inflation, then we will consider cutting rates," he added.

In terms of economic growth, the BSP said it expects a "relatively strong" performance in the fourth quarter, similar to the 5.9% growth seen in the July to September period. — VDV, GMA Integrated News