Bangko Sentral ng Pilipinas Governor Felipe Medalla is not ruling out the possibility of another “surprise supply shock” that may impact inflation that already hit a more than 14-year high of 8.7 percent in January.
“It was actually higher than the high end of our forecast [for the month]…Of course, I can’t rule out another surprise,” Medalla said in a message to reporters on Wednesday.
When asked if this would mean a surprise policy move, Medalla clarified that it could be a “surprise supply shock.” He did not elaborate.
Headline inflation climbed to 8.7 percent year-on-year in January, faster than 8.1 percent in December. This was above the BSP’s forecast range of 7.5 percent to 8.3 percent for the month.
Core inflation, which excludes selected volatile food and energy items to depict underlying demand-side price pressures, increased to 7.4 percent in January from 6.9 percent in December. On a month-on-month seasonally adjusted basis, inflation went up to 1.0 percent in January 2023 from 0.3 percent in the previous month.
The higher inflation was traced to non-food items, particularly the increase in housing and utilities inflation with higher electricity generation charges and the implementation of the approved water rate rebasing during the month.
Food inflation also increased, particularly for vegetables and fruits due to agricultural damage from heavy rains during the month. Inflation for dairy products and eggs rose at double-digit rates, while fish inflation accelerated as the implementation of the closed fishing season and cold weather conditions limited the supply.
“The January 2023 inflation data points to the need for sustained efforts to combat price pressures, particularly non-monetary government measures to mitigate the impact of persistent supply-side constraints,” the BSP said.
“The BSP remains focused on restoring inflation to the government target and stands ready to adjust its monetary policy settings as necessary to anchor inflation expectations and safeguard the inflation target over the policy horizon,” it said.
The Monetary Board raised the benchmark interest rate in December by 50 basis points to a more than 14-year high of 5.5 percent to prevent the second-round effects of inflation and defend the peso against the US dollar.
Hongkong and Shanghai Banking Corp.’s economist for ASEAN region Aris Dacanay said given the enormous upside surprise in inflation and supported by a strong fourth-quarter 2022 GDP figure of 7.2 percent, the possibility of “another punchy rate hike in Feb increases.”
“No one saw it coming. In fact, the market expected inflation to go down; the forecasts surveyed by Bloomberg ranged from 5.4 percent to 8.0 percent, which means all forecasts were below the December 2022 CPI of 8.1 percent y-o-y and everyone expected inflation to have already peaked,” Dacanay said.