Inflation threat from rice prices to keep BSP hawkish

MANILA  -Resurgent rice prices continued to highlight the Philippines’ delicate economic condition, which should prompt the Bangko Sentral ng Pilipinas (BSP) to stay hawkish in order to prevent inflation from adding more damage to growth, ING Bank said.

Inflation for rice, the main staple in the Philippines, rose 15.8 percent year-on-year in November after easing to 13.2 percent in the previous month, which showed the “vulnerability to supply-side shocks,” Nicholas Mapa, senior economist at ING Bank in Manila, said in an emailed commentary.

READ: Agri officials see stable rice prices

Government data showed the average price of regular milled rice jumped to P46.73 per kilo in November from P45.42 kilo per kilo in the preceding month.

Meanwhile, well-milled rice cost P51.99 per kilo on average last month, higher than October’s P51 per kilo.

That rice prices went up at a faster rate in the wake of peak harvest season showed the volatility of food supply in the Philippines.

READ: PH central bank says to keep policy tight despite an easing in inflation

That said, Mapa believes the BSP will stay hawkish, “possibly extending its pause well into 2024” to keep inflation expectations in check.

While the rate hikes cannot fix supply problems, BSP Governor Eli Remolona Jr. earlier explained that a tight monetary policy “can serve to break the link between those supply-side shocks and expectations.”

More hikes?

But the ING Bank economist said the likelihood for additional rate hikes “has diminished significantly” after headline inflation softened 4.1 percent year-on-year in November, from 4.9 percent in the previous month.

As it is, the November price growth gave the government better chances of finally bringing inflation back to its 2 to 4 percent target. But with the year-to-date average at 6.2 percent, the government is poised to miss its annual inflation target for the second year in a row.

Last month, the BSP kept its policy rate unchanged at 6.5 percent after inflation cooled for the first time in three months last October while the economy posted a forecast-beating growth in the third quarter.

The central bank said policy makers “deems it necessary to keep … settings sufficiently tight until a sustained downtrend in inflation becomes evident.”