The Bangko Sentral ng Pilipinas (BSP) forecast inflation in October ranging from 2.0 percent to 2.8 percent. Key drivers of this upward pressure include rising prices for food items such as vegetables, fruits, and fish, alongside increased domestic petroleum prices and the depreciation of the peso.
However, the BSP anticipates that these pressures may be partially mitigated by declining prices for rice and meat, as well as lower electricity rates. The Monetary Board emphasized its commitment to maintaining price stability, which is essential for fostering balanced and sustainable economic growth and employment in the country.
Inflation in September slowed to 1.9 percent from a seven-month low of 3.3 percent in August, the lowest since May 2020 on the back of moderating prices of food and non-alcoholic beverages. Core inflation in September, which excludes volatile food and oil items, also edged lower to 2.4 percent from 2.6 percent a month earlier.
The Bank of the Philippine Islands (BPI) forecast inflation likely accelerated to 2.5 percent in October, equivalent to a 0.4 percent month-on-month increase. The previous month’s headline print was likely the lowest for this year due to fading base effects. Unfavorable weather conditions in October may have affected the price of some food items, especially vegetables and fruits. Oil price hikes along with peso depreciation may have also fueled the increase in food costs. The price of rice fell based on PSA data as supply prospects continued to improve, although the decline has not been meaningful as legal challenges surrounding the implementation of the rice tariff cut persist.
Despite the anticipated uptick, BPI analysts expect inflation to remain manageable in the next 12 months, barring new supply shocks. “Upside risks to this outlook include the possibility of La Niña and spread of African Swine Fever. It should also be noted that inflation remains sensitive to climate conditions and could go up easily. However, stable commodity prices amid China’s economic slowdown may offset these risks,” the analysts said.
With inflation expected to remain manageable, a rate cut from the BSP could be on the table in December. However, external developments may also affect the BSP’s decision. The recent depreciation of the peso reflects the market’s concerns over the pace of the Federal Reserve’s rate cuts and the possibility that the Fed could pause. A stronger-than-expected US jobs report or a Republican sweep in the upcoming US elections could reinforce this sentiment, potentially weakening the Peso further and adding upward pressure on inflation. The BSP may consider a pause in its rate cuts if the Fed doesn’t cut as anticipated, the lender said.
The recent volatility in the markets highlights the need for prudence when it comes to rate cuts. While inflation forecasts allow room for a cut, aggressive action may not be prudent in the current climate. Global and domestic supply shocks can alter the outlook for inflation quickly, making a cautious approach to rate cuts more suitable to maintain stability, BPI analysts said.
