By means of Luisa Maria Jacinta C. Jocson, Reporter
Headline inflation may have increased in December due to higher food and utility prices, but full-year inflation likely remained within the target range of 2-4%, analysts said.
A Business world a poll of 13 analysts produced an average estimate of 2.7% for the consumer price index (CPI) in December.
This is within the 2.3%-3.1% forecast of the Bangko Sentral ng Pilipinas (BSP) for this month.
If realized, inflation in December would have been faster than the 2.5% in November, but slower than the 3.9% in the same month in 2023.
December would also be the third month in a row in which inflation accelerated on a monthly basis.
The Philippine Statistics Authority (PSA) will release December and full-year inflation data on January 7.
“We estimate that inflation rose to 2.7% in December from 2.5% in the previous month, which would bring full-year inflation to 3.2% for 2024,” Chinabank Research said.
“We expect inflation to rise 2.7% year-on-year in December, bringing full-year inflation to 3.2%,” said Sarah Tan, an economist at Moody’s Analytics.
Security Bank Corp. vice president and head of research division Angelo B. Taningco said food inflation was still likely the largest contributor to the overall CPI in December.
“The acceleration from November’s 2.5% will be driven by higher price pressure in the food and electricity categories,” Ms Tan said.
She said this was due to the damage caused by typhoons that ravaged the country from late October to November.
“These storms came after the typical typhoon season that lasted until October. Lowland vegetables and rice were among the worst affected crops as the typhoons swept across key agricultural areas,” she said.
“The overall impact on food production will continue to be reflected in December inflation figures,” she added.
The Philippines saw six typhoons enter its area of responsibility in November, according to the Philippine Atmospheric, Geophysical, and Astronomical Services Administration.
“We have observed higher prices for some key food items such as vegetables and fish, along with increases in electricity tariffs and the cost of LPG and petroleum,” Chinabank Research said.
Mr Taningco said increases in electricity tariffs and pump prices may also have contributed to inflation in December.
In December, adjustments to pump prices amounted to a net increase of P1.40 per liter for gasoline and P1.45 per liter for diesel. However, kerosene prices saw a net decline of P0.80 per liter.
Meanwhile, Manila Electric Co. (Meralco) increased the overall rate by P0.1048 per kilowatt hour (kWh) to P11.9617 per kWh in December, from P11.8569 in November.
Economist Reinielle Matt Erece of Oikonomia Advisory & Research, Inc. also noted the impact of holiday spending on inflation in December.
“The slight increase in the CPI in December may reflect seasonal demand, largely from broad food products, especially ‘noche buena’ foods, which historically would see cyclical upswings,” said Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines. , Inc., said.
FULL YEAR WITHIN GOAL
Despite faster inflation in December, full-year inflation appears to remain firmly within the 2-4% target.
“We remain confident that despite this rebound, full-year inflation will be around 3.2%, which is still within the BSP’s targets,” Mr Erece said.
The BSP expects inflation to average 3.2% in 2024.
The country also expects inflation to remain within target between 2025 and 2026. The baseline and risk-adjusted forecasts for both years are expected to remain within the 2 to 4% range.
“Looking ahead, we expect inflation to remain within the BSP target of 2-4%, supported by lower tariffs on rice imports,” Chinabank Research said.
“Average inflation for 2024 is in the middle of the BSP’s inflation target, and we expect inflation in 2025 to be slower at this point, at 3%,” Mr Asuncion said.
This would help pave the way for further monetary easing in 2025, he added.
“In the coming months, it is possible that inflation will remain at 2% levels until early 2025, or well within the BSP inflation target of 2-4%, which could justify further cuts in the BSP interest rate,” Rizal Commercial said Banking Corp. Chief Economist Michael L. Ricafort said.
Mr Taningco said the central bank was likely to implement a “gradual pace” of rate cuts.
In 2024, the BSP has made a total of 75 basis points (bps) of rate cuts since the easing cycle started in August.
“We expect monetary policy easing to continue into 2025. However, BSP will be cautious in monitoring global developments that could reignite inflation and weaken the peso’s strength,” Ms Tan said.
In 2024, the peso closed at the record low of P59 three times (on November 21, November 26 and December 19) as the dollar rose on bets on slower rate cuts by the US Federal Reserve due to inflation concerns.
Sun Life Investment Management and Trust Corp. economist Patrick M. Ella said he predicts a total of 75 basis points of rate cuts by 2025, in 25 basis point increments.
“We are now looking at three cuts for the BSP (75 bps) instead of a previous forecast of four cuts (100 bps). We don’t see them cutting back on the Fed, but more in line with domestic data developments,” he said.
The central bank is likely to continue cutting rates in “baby steps” as it continues to closely monitor upside risks to inflation, he added.
RISKS
Analysts also pointed to risks that could slow the BSP’s rate-cutting cycle.
“First, the prospect of US tariffs looms large, likely slowing the pace of global interest rate normalization. These will play a role in the BSP’s decision to further ease monetary policy (in 2025),” Ms Tan said.
“However, there are upside risks on the horizon, especially regarding the Trump administration’s uncertain impact on local inflation, including overseas Filipino worker (OFW) remittances (in 2025),” Mr. Asuncion said.
Mr Erece also pointed out the need to take into account the US Federal Reserve’s own policy moves.
“These inflationary pressures within their targets and the need to stimulate economic growth could be the signal for the central bank to continue easing monetary policy,” he said.
“However, it is in the BSP’s best interest to closely monitor the Fed’s stance with their own monetary policy.”
The Fed cut rates aggressively in September, November and December, but at its latest meeting it announced fewer rate cuts through 2025.
“There is a possibility that the Fed will take an aggressive stance if inflation persists and if Trump continues with his economic reforms, such as rate increases, which will lead to fewer interest rate cuts,” Erece said.
“This could trigger further appreciation of the US dollar and may prompt the BSP to recalibrate their monetary policy to prevent the peso from rapidly depreciating through fewer or smaller interest rate cuts,” he added.