THE country’s inflation rate is expected to remain elevated, even reaching up to 8.6 percent in December, driven by persistently high costs of food and energy, the Bangko Sentral ng Pilipinas said in its report.
The BSP said it projects December inflation to settle within the range of 7.8 to 8.6 percent.
“Upward price pressures for the month are expected to emanate from higher electricity rates, uptick in the prices of agricultural commodities, elevated meat and fish products and higher LPG [liquefied petroleum gas] prices,” the BSP said.
The reduction in petroleum and rice prices as well as the peso appreciation could contribute to easing price pressures for the month, the BSP said.
In November, the country’s inflation rate rose to 8 percent, its highest in 14 years, and was up from the previous month’s 7.7 percent and last year’s 3.7 percent.
Year-to-date, the country’s inflation rate was at 5.6 percent, above the government’s target of between 2 to 4 percent.
BSP Governor Felipe M. Medalla earlier said the policy-making Monetary Board may not pause on its rate increases, but would not resort to any extreme forecasts in rate increases.
Medalla said it is possible that inflation will peak in December, rather than the November timeline that they earlier predicted.
However, he said, the higher inflation in November largely owed to the typhoons which affected the supply of vegetables, fish and seafood prices, among others.
With the rate increases, Medalla said, the BSP is also not keen on cutting the Reserve Requirement Ratio (RRR). He said doing this while increasing interest rates may only lead to confusion.
If the BSP would no longer be on rate-increase mode, it is possible to cut the RRR down to around 10 percent from the current 12 percent. Medalla also said: “symbolically, we can make it 9.9 percent.
“In reality, we should be able to do that because all we have to do is borrow more to mop up the liquidity cost by the RR cut. But to avoid confusing the market, it has to wait when we’re no longer in an increasing mode,” the BSP chief said.
Medalla said inflation is expected to start slowing in 2023 and would be closer to 3 percent than 4 percent in the third quarter of next year. Inflation will also be expected to be below 2 percent near the end of 2023 or even early 2024.
He said next year would also see the end of the strong dollar period, which would contribute to cooling inflation. This will also be accompanied by lower oil prices, which have also been listed among the main reasons for the increase in commodity prices nationwide.
Image credits: Nonie Reyes