Philippine CPI Breaks Central Bank’s Forecast in Test to Policy

Inflation in the Philippines picked up more than expected in January, signaling that space for easy monetary policy might be narrowing amid a shaky economic recovery. The peso fell.

Consumer prices rose 4.2% last month from a year earlier, the statistics agency reported Friday, the fastest since January 2019. That’s above the central bank’s forecast of 3.3%-4.1%, and higher than all 19 analyst estimates in a Bloomberg survey, which had a median of 3.5%.

Philippine CPI Breaks Central Bank’s Forecast in Test to Policy

The peso dropped to the lowest in more than a week, while the Philippine Stock Exchange index slid 0.9% before reversing losses to gain 0.7% as of noon time in Manila.

Rising costs of food and drinks, particularly meat and vegetables, were the main drivers of inflation, Claire Dennis Mapa, national statistician, said at a briefing.

Faster inflation was due to supply-side shocks, which are temporary and “should not require a monetary policy response unless they lead to further second-round effects,” central bank Governor Benjamin Diokno said in a mobile-phone message. Current cost pressures are best addressed by non-monetary moves like increasing food supply, he said.

Steady Rate

As price pressures build, some analysts expect the Bangko Sentral ng Pilipinas to keep its benchmark interest rate steady at 2% for the whole year.

“Monetary policy is unlikely to tighten in this part of the economic cycle” even as financial conditions “must remain supportive” for domestic demand, said Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken AB in Singapore.

What Bloomberg’s Economists Say...

“Philippine inflation blew past the upper bound of Bangko Sentral ng Pilipinas’ 2-4% target in January -- marking the end of the central bank’s easing cycle, in our view. With inflation likely to remain elevated in the months ahead, we expect BSP to hold steady through at least year-end as tightening is also unlikely given the weak state of the economy.”

-- Justin Jimenez, Asia economist

Inflation will likely remain elevated in the coming months, with base effects from last year’s muted price increases and persistent cost pressures pushing the headline number close to or above the 4% level, according to Nicholas Mapa, an economist at ING Groep NV in Manila.

Policy makers will consider price developments and last quarter’s economic contraction when they meet on rates Feb. 11, Diokno said. The BSP is ready to deploy its full arsenal of tools as needed, he said.

BSP has said inflation is likely to remain in the upper half of its 2%-4% target in the first six months of the year, before easing to below 3%. In January, Diokno signaled a “long pause” on the interest-rate front, with the current rate in place for another two quarters or more.

©2021 Bloomberg L.P.

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