INFLATION in December 2022 likely accelerated to a high of 8.6 percent from 8 percent a month ago due to higher food prices and power rates, the Bangko Sentral ng Pilipinas (BSP) said Thursday.
In a statement, BSP projected this month’s inflation rate to settle within a range of 7.8 to 8.6 percent.
“Upward price pressures for the month are expected to emanate from higher electricity rates, an uptick in the prices of agricultural commodities, elevated meat and fish products, and higher LPG prices. Meanwhile, the reduction in petroleum and rice prices as well as the
peso appreciation could contribute to easing price pressures for the month,” it said.
The BSP said it is closely monitoring the emerging price developments to enable timely intervention that could help prevent the further broadening of price pressures, in accordance with its price stability mandate.
Inflation in November 2022 raced to a 14-year high of 8 percent from 7.7 percent a month ago, due to faster increases in the prices of food and non-alcoholic beverages.
The December 2022 rate is significantly faster than the 3.7 percent in the same month a year ago. This brings the average inflation from January to November 2022 to 5.6 percent, well over the government’s target range of 2 to 4 percent.
The Development Budget Coordination Committee on Dec. 5, 2022, inconsultation with the BSP, has decided to retain the current inflation target of 3.0 percent plus-minus 1.0 percentage points (or 2 to 4 percent) for 2023 to 2024 and set the same inflation target for 2025 to 2026.
The announcement of the medium-term inflation target is in line with the BSP’s commitment to transparency and accountability as well as the forward-looking approach in the conduct of monetary policy.
Earlier, BSP Governor Felipe Medalla said the inflation rate was expected to peak in December 2022.
Medalla said there were uncertain events that could impact the annual increases in consumer prices for the month, such as what would happen outside of the country.
“I’m very sure that the peak [of inflation] will be in December,” Medalla said, although he refused to give a specific number.
But he said inflation might pick up slightly from the 8 percent posted in November 2022.
“We thought inflation was going to peak in October 2022, but [then] typhoons came,” the BSP chief said.
Medalla also did not rule out the possibility of more rate hikes next year.
“A rate hike is a likely event, but things might change,” Medalla said.
The Monetary Board raised the benchmark interest rate in the middle of this month by 50 basis points to 5.5 percent, a 14-year high, to prevent the second-round effects of inflation that may accelerate further this month.
Accordingly, the interest rates on the overnight deposit and lending facilities were set at 5.0 percent and 6.0 percent, respectively.
“The BSP’s latest baseline forecasts show that average inflation is still projected to breach the upper end of the 2 to 4 percent target range for 2022 and 2023 at 5.8 percent and 4.5 percent, respectively,” Medalla said.
However, the forecast for 2024 fell to 2.8 percent owing mainly to the further easing in oil prices, peso appreciation, and the slightly lower domestic growth outlook resulting in part from the BSP’s cumulative policy rate adjustments.
“The Monetary Board arrived at its decision after noting the further uptick in the headline (inflation) and the sharp rise in core inflation in November amid pent-up demand. Moreover, upside risks continue to dominate the inflation outlook up to 2023 while remaining broadly balanced in 2024,” Medalla said.
He said the expected upside risks to inflation over the policy horizon stem mainly from elevated international food prices due to high fertilizer prices and supply chain constraints.
On the domestic front, trade restrictions, increased prices of fruits and vegetables due to weather disturbances, higher sugar prices,
pending petitions for transport fare hikes, as well as potential wage adjustments in 2023 could push inflation upwards.
Meanwhile, the impact of a weaker-than-expected global economic recovery continues to be the primary downside risk to the outlook.