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Manila Bulletin devider Business devider Banking & Finance devider BSP forecasts higher inflation for August

BSP forecasts higher inflation for August

Published Aug 31, 2023 07:51 am

At A Glance

  • The Bangko Sentral ng Pilipinas (BSP) forecasts inflation will be higher in August, about 4.8% to 5.6%, compared to 4.7% actual rate in July.
  • Inflation is expected to be elevated because of higher prices of rice and other agricultural commodities due to bad weather disturbances, says the BSP.
  • Meanwhile, lower electricity rates "could contribute to downward price pressures" in the August consumer price index (CPI).
  • The government will announce the August CPI on Sept. 5.

The Bangko Sentral ng Pilipinas (BSP) said inflation will be higher in August compared to July because of the impact of bad weather on food prices.

The forecast is that consumer price index (CPI) will likely settle within the range of 4.8 percent to 5.6 percent for the month of August versus July’s actual rate of 4.7 percent.

“Higher prices of rice and other agricultural commodities due to weather disturbances, sharp rise in fuel prices as well as increased transport costs owing to higher train fares and toll rates, and the peso depreciation are the primary sources of upward price pressures in August,” the central bank said Thursday, Aug. 31.  

There were three tropical typhoons that hit the country in recent weeks including "Egay", "Falcon" and "Goring". The bad weather has brought floods and damage to agricultural crops.

Meanwhile, the BSP said that lower electricity rates “could contribute to downward price pressures” in the August CPI.

The Philippine Statistics Authority is scheduled to announce the August inflation next week, Sept. 5.

With July’s CPI of 4.7 percent which was a significant decline from June’s 5.4 percent, the year-to-date inflation average is still above-target at 6.8 percent. The government target for 2023 until 2025 is two percent to four percent inflation.

As of its Aug. 17 Monetary Board policy meeting, the BSP forecasts CPI of 5.5 percent for this year while the projection for 2024 is 3.3 percent and 3.4 percent for 2025 -- both are within the target band.

Based on the BSP’s latest Monetary Policy Report, it expects inflation to drop to an average 3.4 percent in the last quarter of the year. Then by the first quarter of 2024, the inflation rate will be around 2.4 percent but will “accelerate near the upper end of the target range” in the next two quarters, or the second and third quarters.

The expectation is that by the second quarter of 2024, CPI will average at 3.6 percent and by the third quarter next year, at 3.7 percent.

The factors behind the forecast levels are positive base effects, higher crude oil prices, and the lagged impact of minimum wage adjustments, before settling slightly above the midpoint of the target in 2025, said the BSP.

The BSP also said that the estimated negative base effects until January 2024 will be favorable for the inflation path.

Meanwhile, upside risks to the inflation outlook include more transport fare hikes and minimum wage adjustments, as well as higher prices of key food items and the impact of El Niño weather conditions on food and electricity prices which could lead to renewed second-round effects.

As of its August analysis, the BSP said inflation expectations for 2023 has remained steady while factors indicate further easing of inflation for 2024 and 2025.

This was shown in the latest survey round on private sector economists’ inflation expectations which the BSP said showed unchanged mean inflation forecast from the July survey of 5.5 percent for 2023.

The mean inflation forecast for 2024 was also lower at 3.5 percent from 3.6 percent in the July survey. For 2025, analysts also predicted a lower inflation of 3.4 percent from the previous 3.6 percent estimate.

Despite upside risks to the inflation outlook, analysts agree with BSP that CPI will decline in the coming months largely because of negative base effects.

The downside risks are the lagged effect of the BSP’s successive monetary policy tightening, which is expected to temper inflation, said the BSP.

To contain rising inflation and ease the exchange rate volatility, the BSP has raised the benchmark rate by a cumulative 425 basis points from May 2022 until March 2023. For the past three policy meetings in a row, the BSP has maintained a hold position and kept the interest rate unchanged at 6.25 percent.

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