March 21, 2023

BSP sees inflation falling below 4% by October

The country’s inflation may dip below 4% by October, according to the Bangko Sentral ng Pilipinas (BSP) following a lower-than-expected consumer price index (CPI) for February.

The BSP had previously warned that the inflation above its target range of 2% to 4% could last until December 2023, after the January inflation rate reached 8.7% versus 8.1% in December 2022.

However, the BSP is now confident that inflation will remain around 3.8% in the fourth quarter, driven by negative base effects and the likely decline in global oil and non-oil prices.

Supply-side factors continue to exert upward pressure on inflation, driven by elevated global and domestic commodity prices, according to the BSP.

The risks to inflation outlook for 2023 and 2024 are still tilted to the upside, as uncertainties in the global food market, increased domestic prices of key food items, and elevated oil prices, among other factors, may result in additional transport fare hikes and higher-than-expected wage adjustments in 2023.

The potential impact of a weaker-than-expected global recovery is the primary downside risk to the outlook.

The BSP’s full-year inflation forecast for 2023 is an average of 6.1%, followed by a 3.1% average in 2024. The central bank forecasts that inflation will average at 7.7% in the first six months of this year, before dropping to 5.4% in the third quarter, and finally settling at 3.8% in the last quarter of the year.

BSP’s Monetary Board is scheduled to hold its next policy-setting meeting on March 23. Following a 50 basis points increase in the benchmark borrowing rate to 6% during the first policy meeting for 2023 on February 16, the BSP may consider raising the reverse repurchase rate by 25 basis points if the February inflation remains lower than January’s results.

The BSP continues to emphasize its commitment to adjusting monetary policy settings as necessary to prevent inflation expectations from becoming disanchored, and to call for the timely and effective implementation of non-monetary government measures to mitigate the impact of persistent supply-side pressures on inflation.