BPI economist expects inflation to settle above BSP target range


A bank economist refuted the assessment of the Bangko Sentral ng Pilipinas that the faster inflation rate in recent months was “transitory” and that the full-year figure could settle above the target range in 2021.

Bank of the Philippine Islands lead economist Jun Neri said in a report the acceleration of inflation to 4.2 percent in January from 3.5 percent in December showed that consumer prices continued to surge, opening the possibility of breaching the 5-percent level in the coming months.

He said inflation maintained its upward trajectory, “confirming our view that it’s not transitory.”

“Back in November, we started to notice the impact of the African Swine Fever on pork supply. We also mentioned in our October inflation report that pork prices may keep inflation above the policy rate. Since then, the situation has worsened and the possibility of inflation breaching the 5 percent level has increased significantly,” Neri said.

The Philippine Statistics Authority said Friday the inflation in January accelerated to a two-year high of 4.2 percent from 3.5 percent in December 2020 because of the uptick in food prices and transport costs, breaching in the process the 2 percent to 4 percent inflation target band of the BSP.

The January print was faster than 2.9 percent a year ago. It was also the fastest inflation rate in two years since it reached 4.4 percent in January 2019. It also surpassed the forecast range of 3.3 percent to 4.1 percent announced by the BSP prior to the release of the official data.

The PSA said the overall inflation was pushed up by the higher annual increment of the heavily-weighted food and non-alcoholic beverages at 6.2 percent during the month, from 4.8 percent in December 2020.

“There is a significant chance that full-year inflation will exceed the BSP’s 4-percent target, unless the supply constraints are addressed. The ASF problem will not likely subside soon since it’s going to take the swine industry several months to address this according to the Department of Agriculture,” Neri said.

BSP Governor Benjamin Diokno said Friday that despite the uptick in consumer prices in January, it was still consistent with the BSP’s assessment of a transitory increase in inflation in the first half.

“Average inflation is still seen to settle within the 2 percent to 4 percent target range over the policy horizon,” Diokno said in a statement. He said the uptrend in inflation was seen temporary.

Meanwhile, Neri said the distribution of vaccines around the world in 2021 might lift global demand and push oil prices higher. 

“Given these supply side pressures, we have revised our 2021 full-year inflation forecast to 4.3 percent,” Neri said.

He said that with inflation now above 4 percent, the BSP would likely refrain from doing additional rate cuts this year. The Monetary Board of the BSP will conduct its first policy meeting for the year on Feb. 11.

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