The Philippine Statistics Authority (PSA) announced on Tuesday that inflation hit its fastest acceleration in more than two years in August but the Bangko Sentral ng Pilipinas (BSP) believes it will drop within the government’s target by the end of the year.
In a statement sent to reporters, BSP Governor Benjamin Diokno said the latest inflation outturn is consistent with the BSP’s assessment, despite accelerating back to 4.9 percent in August.
Diokno also said inflation would still settle close to the high end of the target inflation range in the near term “before decelerating back to within the target range by year end”.
The country’s inflation target range for the year is at 2 to 4 percent.
While the August inflation acceleration seems to be a nudge towards the wrong direction, analysts agree that the country’s monthly inflation print could still fall within target in the last months of 2021.
Rizal Commercial Banking Corporation (RCBC) economist Michael Ricafort said on Tuesday that inflation could still edge higher in the coming months but would eventually be below 4 percent in late 2021.
“In view of the typhoon season and still relatively lower base/denominator effects, inflation could mathematically reach a peak of about 5 percent by September or October 2021, before easing thereafter back to 3 to 4 percent by November-December 2021 as the lower base/denominator effects fade by then,” Ricafort said.
ING Bank economist Nicholas Mapa also said they expect inflation to remain above target in September and possibly October with the headline only likely to “dip back” within target by November as base effects turn favorable.
Diokno said that inflation will likely fall back to the midpoint of the target next year, up to 2023, supported by the continued and timely implementation of non-monetary measures and reforms to directly address supply-side pressures on key food items.
“The risks to inflation remain broadly balanced over the policy horizon. The uptick in international commodity prices due to supply-chain bottlenecks and the recovery in global demand could lend upside pressures on inflation,” Diokno said.
“Meanwhile, the emergence of new coronavirus variants, leading to stricter lockdown measures and delayed reopening of the economy, is seen to pose downside risks to both aggregate demand and inflation,” he added.
For Mapa, “the absolute worst policy recommendation” would be for BSP to hike policy rates at a time of surging cost-driven inflation amidst the pandemic.
Diokno, meanwhile, said on Tuesday that the BSP “stands ready” to maintain its accommodative monetary stance for as long as necessary to support the economy’s sustained recovery “to the extent that the inflation outlook would allow.”
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