Bangko Sentral ng Pilipinas sees inflation easing below 6%

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Inflation likely eased to below six percent in October after quickening for two straight months to 5.3 percent in August and 6.1 percent in September, according to the Bangko Sentral ng Pilipinas (BSP). In its month-ahead inflation forecast, the BSP said inflation likely settled within a range of 5.1 to 5.9 percent in October.

The central bank said lower prices of rice, meat and vegetables along with the reduction in the prices of petroleum products contributed to downward price pressures last month.

On the other hand, higher prices of electricity, liquefied petroleum gas, fruits and fish were the primary sources of upward price pressures in October.

The BSP also cited the recent adjustment in jeepney fares as the provisional increase of P1 approved by the Land Transportation Franchising and Regulatory Board took effect on Oct. 8.

This brought the minimum fare for traditional jeepneys to P13 from the previous P12 and for modern jeepneys to P15 from P14.

'Going forward, the BSP will continue to closely monitor developments affecting the outlook for inflation and growth in line with its data dependent approach to monetary policy formulation,' the central bank said in a statement.

Despite easing for six straight months to 4.7 percent in July from a peak of 8.7 percent in January, headline inflation averaged 6.6 percent from January to September after accelerating in August and September.

The inflation outturn during the nine-month period remained well above the BSP's two to four percent target range.

The BSP is no longer expecting inflation to ease within the target range as early as November.

Inflation is expected to return briefly within the target range in early 2024 before breaching the upper end of the target between May and June next year.

Earlier, BSP Governor Eli Remolona Jr. said there is a good chance that the Monetary Board would keep interest rates unchanged on Nov. 16 as inflation likely eased in October.

After hinting another possible 25-basis-point rate increase, Remolona signaled a possible pause in the next meeting of the BSP's policy-making body.

'The likely scenario is I'm not even sure if 25 basis points would be justified. So there's a good chance we won't hike. There's a good chance we'll pause and there's a chance we might hike. A 50-basis-point hike is a bit of a stretch,' the BSP chief earlier said.

The BSP has raised key policy rates by a total of 450 basis points since May last year as it intensified its battle against inflation and to stabilize the peso.

After maintaining a hawkish pause between May and September, the BSP took an off-cycle and urgent monetary action on Oct. 26 to prevent supply-side price pressures from inducing additional second-round effects and further dislodging inflation expectations.

This brought the benchmark interest rate to a fresh 16-year high of 6.50 percent, the highest since the 7.50 percent in May 2007.

ING Bank senior economist Nicholas Mapa said more recent comments suggest a less hawkish tone although there are admittedly two important data points, inflation and the third quarter gross domestic product (GDP) growth, on the data calendar.

'We believe we could see inflation moderate in year-on-year terms from the previous month while we are likely to see the third quarter GDP growth remain subdued as overall economic momentum slows further,' Mapa said.

According to Mapa, there have been calls to not downplay the impact of rate hikes to fight the second round effects and inflation expectations, however, there is also a need to highlight the impact of rate hikes on growth and economic output.

'We can see that economic growth is the collateral damage in this whole exercise where the BSP will have little choice but to target growth, in a bid to slow economic activity enough to snuff out whatever is left of demand side pressures,' he said.

Even if the BSP is carrying out rate hikes to fend off second round effects and to corral inflation expectations, Mapa said the central bank would be on the back of slowing down growth first.