The Bangko Sentral ng Pilipinas (BSP) remains confident that the inflation path will continue to be within the two percent to four percent target range for 2024 and 2025 despite a projected above-target rate for the second and third quarter this year due to El Niño dry weather.
In a statement Tuesday, May 7, after the government’s announcement of a slightly higher 3.8 percent April consumer price index (CPI) versus 3.7 percent in March, the BSP noted that the “inflation outturn is consistent with the BSP expectations that inflation could accelerate temporarily above the target range in the next two quarters of the year due to the possible negative impact of adverse weather conditions on domestic agricultural output and positive base effects.”
“Nonetheless, the BSP expects average inflation to return to the target range for full year 2024 and 2025,” it added.
As of its April 8 Monetary Board policy meeting, the BSP has a risk-adjusted inflation forecast for 2024 of four percent versus the previous estimate of 3.9 percent, but maintained the 3.5 percent projection for 2025.
Given the slight uptick in the April CPI, the BSP could keep the current four percent inflation forecast for 2024 when it meets on May 16 for its next monetary policy meeting.
The key rate is steady at 6.5 percent since October 2023. BSP Governor Eli M. Remolona Jr. has firmly signalled that a rate cut will only be considered in the last quarter of 2024 or the first quarter of 2025, following a similar move from the US Federal Reserve.
Based on the April 8 policy meeting highlights, the BSP’s survey of external forecasters or private economists for March indicated an unchanged mean inflation forecast for 2024 of 3.9 percent, the same as the forecasts in the February survey.
By contrast, the BSP noted that the mean inflation forecasts for 2025 and 2026 both increased to 3.6 percent from 3.5 percent and 3.4 percent, respectively. For 2024, the median inflation forecasts was also unchanged at 3.8 percent, but marginally increased to 3.4 percent from 3.3 percent for 2025 and 3.3 percent from 3.1 percent for 2026.
“Analysts continue to expect inflation to average within but close to the upper end of the target range over the policy horizon, as upside risks owing to supply-side pressures and potential second-round effects continue to dominate their outlook,” said the BSP.
The BSP Tuesday reiterated the risks to the inflation outlook which “continue to lean toward the upside (while) possible further price pressures are linked mainly to higher transport charges, elevated food prices, higher electricity rates, and global oil prices. Potential minimum wage adjustments could also give rise to second-round effects.”
For the May 16 policy meeting, the BSP will consider the April CPI number and the first quarter gross domestic product performance in deciding its latest CPI forecasts.
Meanwhile, the 3.8 percent April inflation is within the BSP’s forecast range of 3.5 percent to 4.3 percent for the month. In projecting the CPI, it noted the continued price increases for rice and meat along with higher gasoline prices as well as the exchange rate market where the peso has been depreciating past P57.
For the first quarter, the inflation rate averaged at 3.3 percent which was within the government forecast range of two percent to four percent.
The BSP had expected this inflation outturn in the first quarter which was due largely to negative base effects. However, the BSP said inflation could temporarily accelerate above the target range in the next two quarters of the year because of dry weather conditions and its impact on domestic agricultural output and positive base effects.