BSP expects to hit inflation target for 2024

For the first time in three years, the Bangko Sentral ng Pilipinas (BSP) might not have to explain to the President why it missed its annual inflation target.

This is because the BSP projects inflation, as measured by the consumer price index (CPI), to settle between 2.3 and 3.1 percent in December, with the average price growth for the entire 2024 seen at 3.2 percent.

Such an outlook means the CPI for 2024 that the Philippine Statistics Authority (PSA) will report on Jan. 7 would sit within the 2 to 4 percent target range of the BSP.

READ: Economist sees inflation settling at 2.6% in December

That would mark the first target-consistent annual inflation reading since 2020, when a pandemic-induced recession sapped overall demand and tempered consumer price increases.

This would also mean that the BSP would not have to write a letter to Malacañang to explain why its inflation target band had been breached. To ensure accountability, the BSP governor sends an open letter to the President outlining the reasons why the actual CPI did not fall within the target, along with the steps that will be taken to bring price growth back to manageable levels.

The BSP, in the past, was able to achieve its inflation target from 2009 to 2014. For this reason, no open letters were issued for this period.

But that streak of benign CPI was broken in 2015, with above-target average inflation also recorded in 2016 and 2018. Between 2021 and 2023, the BSP yet again failed to achieve its inflation goal.

The BSP said its target band for inflation will stay at 2 to 4 percent next year until the end of President Ferdinand Marcos Jr.’s term in 2028.

“The inflation target range remains an appropriate representation of the medium-term goal for price stability, given the current structure of the Philippine economy and the macroeconomic outlook over the next few years,” the central bank said.

More easing?

Explaining its forecast range for inflation in December, the BSP said upward price pressures this month could stem from increased prices of major food items owing to “supply disruptions from recent weather disturbances, as well as higher electricity rates and petroleum prices.”

But the central bank said these factors were expected to be partly offset by lower prices of agricultural commodities like rice, a staple food for Filipinos.

Latest data from the PSA showed inflation slightly picked up to 2.5 percent in November. That mild acceleration in the CPI and a slower-than-expected economic growth in the previous quarter had prompted the BSP to close the year with a third quarter-point rate cut, with Governor Eli Remolona Jr. hinting at additional easing moves next year.

However, some analysts expect shallower rate reductions from the BSP next year amid persistent price pressures and the slower pace of monetary policy easing in advanced economies like the US.

“Going forward, the BSP will continue to monitor developments affecting the outlook for inflation and growth in line with its data-dependent approach to monetary policy decision-making,” the central bank said.