Inflation to hover this year at 4%

MANILA, Philippines — Headline inflation will hover around the four percent level for the rest of the year and is not expected to significantly breach the central bank’s target, a global think tank said.

In its latest economic monitor, Pantheon Macroeconomics said the risk of runaway inflation or hyperinflation in the Philippines remains minimal, even as inflation jumped to four percent in March as domestic commodity prices soared in the aftermath of the Russia-Ukraine conflict.

The March print returned to the upper end of the Bangko Sentral ng Pilipinas (BSP) target range of two to four percent for the first time since October 2021.

“Inflation now looks set to hug the four percent upper limit of the BSP’s target range for the rest of 2022,” Pantheon’s chief Emerging Asia economist Miguel Chanco said.

With this, the think tank raised its full year inflation forecast to 3.9 percent from its earlier 3.5 percent projection.

This is the same level as the 2021 inflation print, but is below the BSP’s 4.3 percent assumption for the year.

But Chanco emphasized that the latest acceleration in inflation is less alarming once the drivers of the increase are put in the proper context.

“Just over half of the one percentage point headline jump was caused by a dramatic turnaround in food inflation, which spiked to a five-month high after cooling persistently since September,” Chanco said.

“But the bump was caused to a large extent by the further unwinding of favorable base effects, which won’t be as pronounced going forward,” he said.

Chanco noted that roughly a third of the increase was caused by a hardening in housing and utilities inflation to 6.2 percent.

He said this would likely see another upward movement in April, but the longer-term outlook is less concerning, even after taking into account the lagged impact of the post-invasion surge in global oil prices.

“Housing and utilities disinflation should eventually take hold from the third quarter, despite the stickiness in oil implied by the futures market,” Chanco said.

Nonetheless, the think tank maintained that policy normalization still is unlikely anytime soon.

“Remember that the (BSP’s) Monetary Board stood pat last year in the face of a more consistent breach of its target,” Chanco said.

Last year, the BSP kept policy rates at record lows even as inflation hovered above four percent. BIZ 13