BSP on guard against price spikes as inflation hits 3-year high
The sudden spike in prices of goods and services in the country is a “temporary” phenomenon that central bank planners expect to eventually stabilize, a top monetary official said yesterday.
In a statement, Bangko Sentral ng Pilipinas (BSP) Governor Nestor Espenilla Jr. said the January year-on-year inflation rate —which hit a three-year high of 4 percent—was “expected” by regulators, even as he admitted that the figure was “at the top end” of their forecasts.
The January inflation rate is significantly higher than the 3.3 percent in December, according to the Philippine Statistics Authority, citing higher costs of food, beverages and tobacco—the most aggressive increase in prices since October 2014.
All eyes are now on the BSP’s monetary setting on Thursday—the first for 2018—as the spike in the country’s inflation rate heightened the possibility of an interest rate hike coming sooner than later. The 4-percent January rate overshot the 3.5 percent market consensus forecast and touched the upper end of the 2-4 percent target of the BSP.
Espenilla attributed the faster pace of price increases to the combined effects of the administration’s tax hikes implemented last month and the rise in world oil prices, “and food [prices] to some extent.”
The government’s Tax Reform for Acceleration and Inclusion lowers personal income taxes and simplifies estate and donor’s taxes but expands the value-added tax base, increases oil and automobile excise taxes and introduces excise tax on sugar-sweetened beverages.
“The BSP could hike rates as early as Thursday following the surge in January headline consumer price index,” Bank of the Philippine Islands lead economist Jun Neri said in a post on Twitter following the inflation announcement.
“The likelihood of a tightening move at Thursday’s meeting has increased significantly,” ING Philippines economist Joey Cuyegkeng said in a research note.
Cuyegkeng had expected the BSP to tighten interest rates not earlier than March.
“We continue to believe that the policy statement will shift to a more decisively hawkish tone, highlighting rising inflation risks that could threaten its 2-4 percent target, thus setting the stage for a rate hike in March,” investment house Nomura said in a research note.
“However, we have not completely ruled out a move this week as the BSP may want to act pre-emptively—and after this high CPI (consumer price index) print, we now assign a higher 30-40 percent likelihood to this outcome, from 20-30 percent earlier.”
Nomura forecasts a total of 100 basis points of cumulative rate hikes this year, taking the policy rate to 4 percent.
“Despite the faster than expected inflation released today, they might have to wait for a few more plots to support higher inflation case,” BDO Unibank chief strategist Jonathan Ravelas said in a text message. “But if they act, it’s more of a calibrated preemptive response to inflation.”
Nonetheless, Espenilla gave no indication that the central bank would be jolted into tightening monetary policy earlier in the year by the latest inflation numbers.
“We think these are temporary drivers of inflation and would eventually stabilize,” he said.
