By means of Luisa Maria Jacinta C. Jocson, Reporter
HEADLINE INFLATION May rose in November as prices of key food items rose due to the impact of several typhoons, analysts said.
A Business world a poll of 15 analysts conducted last week yielded an average estimate of 2.5% for November’s consumer price index (CPI), within the central bank’s forecast of 2.2% to 3% for the month.
If realized, November’s print would be slightly faster than October’s 2.3% clip, but slower than 4.1% in the same month a year ago.
The Philippine Statistics Authority is expected to release November inflation data on December 5.
“We expect inflation growth of 2.5% for November. It is a slight increase that highlights the impact of the several typhoons in October to November that affected vegetable prices, pushing up broad food inflation slightly,” said Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc. .
Several storms hit the Philippines in November alone. The Philippines saw six typhoons enter its area of responsibility during the month, according to the Philippine Atmospheric, Geophysical, and Astronomical Services Administration.
The latest data from the Ministry of Agriculture shows that agricultural damage caused by tropical cyclones Nika, Ofel and Pepito amounted to 785.68 million euros.
“We expect inflation to rise slightly to 2.5% in November from 2.3% in October, partly due to supply constraints caused by bad weather,” said Emilio S. Neri, Jr., chief economist at the Bank of the Philippine Islands.
“The weekly vegetable price data appears to have been affected by typhoons as the month-on-month increases were faster than those in October,” he added.
The Department of Agriculture (DA) said last month that it expects lowland vegetable prices to remain high as storm damage has affected production.
Vegetable prices typically rise by about 10-15% immediately after typhoons, he said.
Sarah Tan, an economist at Moody’s Analytics, also said food inflation will be a major factor behind the expected acceleration in November pressures, largely due to bad weather.
“Among them, the destruction of rice crops was the most severe as the country’s major rice-producing regions, Cagayan Valley and Central Luzon, were severely affected by rain and landings,” Ms. Tan said.
“As domestic rice production shrank, rice imports are expected to have increased to fill that gap. Even with the lower rice rates, retail prices for rice would have become higher,” she added.
Chinabank Research also noted that the upward price pressure came from higher prices of key food products such as fish, meat and eggs.
ENERGY, PESO
“Adding to the pain, utilities increased electricity tariffs in November from the previous month as they passed on some of the higher generation costs to consumers,” Ms Tan said.
Manila Electric Co. also increased the overall rate by P0.4274 per kilowatt hour (kWh) to P11.8569 per kWh in November, from P11.4295 per kWh in October.
Ms Tan also mentioned higher fuel prices during the month.
In November, adjustments to pump prices amounted to a net increase of P1.70 per liter for gasoline, P3.20 per liter for diesel and P1.60 per liter for kerosene.
“Local pump prices rose in November as recent events threatened global oil supply,” Metropolitan Bank & Trust Co. said. (Metrobank).
Security Bank Vice President and Head of Research Angelo B. Taningco also noted the impact of the recent depreciation of the peso.
The peso fell to the level of P59 per dollar twice during the month, reaching record lows on November 21 and 26.
“The non-negligible depreciation of the peso in November may also have contributed to inflationary pressures this month,” Neri added.
For the remaining months of the year, inflation is likely to remain within the target range of 2-4%, analysts said, but they pointed to potential risks to this outlook.
“Despite upward pressure from the series of typhoons and geopolitical tensions, inflation will still remain within the BSP’s target range of 2-4% for the rest of the year,” Metrobank said.
Chinabank Research said inflation will remain within the BSP’s range barring unexpected shocks. However, it was noted that adverse weather conditions could pose a risk to food prices.
The central bank expects inflation to average 3.1% this year. In the first ten months, overall inflation averaged 3.3%.
“Inflation is likely to remain manageable over the next six months, supported by slower rice price growth and stable commodity prices amid the economic slowdown in major economies such as China,” Neri said.
“However, we also see risks that could increase inflation, such as weather disruptions and the possibility of further peso depreciation,” he added.
EASIER TO CONTINUE
While inflation is expected to continue Within the target, the central bank is also likely to continue its rate-cutting cycle, analysts said.
“I still think the BSP will stick to the austerity schedule as inflation stabilizes within their targets,” said economist Reinielle Matt Erece of Oikonomia Advisory & Research, Inc.
Miguel Chanco, chief emerging Asia economist at Pantheon, said weaker-than-expected gross domestic product (GDP) growth in the third quarter will also prompt further interest rate cuts.
“I doubt that coming inflationary pressures will be material to the BSP meeting (in December), which is likely to be more dominated by weaker-than-expected GDP pressures in the third quarter, which we believe will convince the Monetary Board to relax. another 25 basis points (bps) next month, he said.
The economy grew at an annual rate of 5.2% from July to September, a slowdown from revised growth of 6.4% in the second quarter and 6% a year ago.
This was also the weakest growth in five quarters or since the 4.3% growth in the second quarter of 2023.
“While GDP growth in the third quarter was disappointing, this could be differentFIt is difficult to achieve our target of at least 6% for 2024. This could prompt the BSP to resume interest rate cuts to give the economy a boost to growth,” Mr Erece added.
Mr Taningco said he expects the BSP to cut rates by another 25 basis points in December as “inflation remains manageable.”
“With average inflation for 2024 almost halfway to the target, the likelihood of a further 25bp cut at the December Monetary Board meeting is high as price pressures are still manageable compared to the assessment at the previous meeting in October,” said Mr. Asuncion.
BSP Governor Eli M. Remolona Jr. previously said the Monetary Board could cut interest rates or keep them stable at its Dec. 19 meeting, the last policy review of the year.
For 2025, Sun Life Investment Management and Trust Corp. economist Patrick M. Ella expects a rate cut of up to 100 basis points.
“We expect 100 basis points next year (based on our model), but we are open to a small chance of a rate pause in the first quarter, provided the Fed also takes a pause on rate cuts. Otherwise, we see the BSP not pausing their 2025 rate cut cycle,” he said.
Mr Remolona also previously said the Monetary Board could implement rate cuts of 100 basis points, but noted that this would not necessarily be the case at every meeting.
“The combination of target-consistent inflation and sub-target growth leaves ample room for the BSP to cut another 25 basis points at their last meeting in December and implement another 75 basis points of cuts in 2025 to support growth,” Metrobank said. .
On the other hand, analysts cited risks that could cause the BSP’s easing cycle to go off schedule.
Mr Neri said the Monetary Council’s decisions could depend on the peso’s behavior in the coming weeks.
“The currency has been under pressure lately due to market adjustments to expectations for Federal Reserve rate cuts, driven by the expected inflationary impact of Donald Trump and the Fed Chairman’s economic policies. [Jerome] Downplaying Powell’s commentsHe emphasized the urgency of interest rate cuts.
The central bank could choose to keep interest rates steady if the Fed does not continue cutting rates or if the peso crosses the P60 per dollar level, Mr. Neri added.
“Continued upward pressure on inflation could prompt the BSP to reevaluate the pace of the easing cycle,” Metrobank said.
Mr Asuncion also pointed out the likelihood of a “hawk-like pause” as the BSP previously said the balance of risks to next year’s inflation outlook is up to 2026 has been moved up.