Above-target inflation seen in Q2

MANILA, Philippines  —Inflation could potentially overshoot the government’s 2 to 4 percent target range anew in the second quarter of this year as data distortions created by favorable base effects begin to fade, Swiss banking giant UBS said.

Despite that outlook, UBS said in a commentary sent to journalists that it still expects the Bangko Sentral ng Pilipinas (BSP) to cut its policy rate this year.

“We forecast CPI (consumer price index) inflation to fall further in [January and February] on base effects, before breaching the 4 percent upper bound slightly in [second quarter] due to base effects,” the bank said.

READ: PH inflation slowed to 2.8% in January

“We maintain our forecast that BSP will cut rates by 100 [basis points] this year, with a 25-(basis point) rate cut at each of its four scheduled policy meetings in [second half of] 2024,” it added.

Base effects

Inflation softened to an annualized rate of 2.8 percent in January, the lowest reading in over three years and easing from 3.9 percent in December. It was the second consecutive month that price growth moderated to within the BSP’s 2 to 4 percent target range after hovering above that range for 20 months.

While there were less upward price pressures last month, especially among key food items, state statisticians said a “substantial” part of the milder inflation in January was due to a high “base effect.”

This means that the headline inflation rate in January inevitably posted a sharp slowdown because it was compared with the figure recorded a year ago, when costly utilities had unexpectedly pushed up the CPI to a high of 8.7 percent.

READ: BSP seen keeping 6.5% policy rate at Feb. 15 meet

Ahead of the much-awaited BSP policy meeting on Feb.15, average rates for Treasury bills rose for the eighth consecutive week on Monday, although the government was still able to borrow its planned amount of P17 billion as total tenders exceeded the size of the issuance by 3.3 times. INQ