PH inflation may normalize next year, says central bank

AFP file photo

The rate of increase in prices of basic goods in the Philippines is now expected to cool faster than previously believed from current high levels, and monetary authorities are now revising downward their inflation forecast, giving hope that the target could be achieved as early as next year.

Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla said at the midyear economic briefing organize by the Manila Times that the forecast made on June 23—which penciled in an average inflation of 5 percent in 2022 and 4.2 percent in 2023, give or take one percentage point—was being reworked.

This means the forecast as of June was for a range of 3.5 percent to 4.5 percent in 2023 and 2.3 percent to 4.3 percent in 2024.

Last month’s forecast also put inflation in 2024 at 3.3 percent, near the midpoint of the target range of 2 percent to 4 percent.

“Because we are getting new data, the 2023 forecast is likely to be revised to below 4 percent,” Medalla said.

“Barring any large and unpleasant external shocks or domestic shocks that largely arise from the weather in the Philippines, we are hoping for inflation within target next year and very, very close to the midpoint of the target [which is 3 percent] in 2024,” he added.

Best available numbers

The BSP chief said that while the central bank could not guarantee that the latest forecast will be realized, given all the uncertainties that might arise, these were the best numbers that they have.

“We think that there is a good chance that we will be able to not only [achieve] a target-consistent inflation path,” Medalla said.

He said that if the BSP failed to shepherd inflation to below 4 percent in 2023, the BSP was “quite confident that that target will be achieved in 2024.”

Such confidence is apparently backed by the BSP’s readiness to implement further monetary policy adjustment in the coming months following a surprise, off-cycle 0.75-percentage point policy rate hike last July 14.

This is particularly so after the United States Federal Reserve also raised their own rate by 0.75 ppt earlier this week, with expectations of more hikes later this year.

Medalla himself said the Monetary Board might raise the BSP policy rate by 0.25 to 0.5 ppt at the next meeting in August.