Analysts expect inflation to pick up pace in October

MANILA, Philippines — Economists are anticipating a faster increase in prices of essential goods and services for October amid fading base effects, unfavorable weather conditions and fuel price hikes.

Patrick Ella, an economist at Sun Life Investment Management and Trust Corp. said inflation may have picked up to 2.3 percent in October from 1.9 percent in September.

However, this would still be lower than the 4.9 percent inflation print in October 2023.

He also said there is no possibility of inflation exceeding the two to four percent target of the Bangko Sentral ng Pilipinas in October. It would also hit the BSP’s two to 2.8 percent month-ahead forecast.

The Philippine Statistics Authority is scheduled to release the October inflation data this Nov. 5.

“As for monetary policy, I think it’s on auto-pilot and I see very little factors to interrupt a 25-basis-point cut on Dec. 19,” Ella added.

The BSP’s Monetary Board delivered a 25-basis-point cut last Oct. 16 as the within-target inflation outlook and well-anchored inflation expectations continue to support the central bank’s shift toward a less restrictive monetary policy.

The central bank has lowered borrowing costs by a total of 50 basis points so far or since it began its easing cycle in August. Prior to the cuts, the BSP kept its policy rate steady for six straight meetings since November 2023. From May 2022 to October 2023, it hiked rates by 450 basis points to tame inflation.

For his part, UnionBank chief economist Ruben Carlo Asuncion said inflation went up to 2.5 percent in October due to slightly higher electricity charges compared to a year ago.

“Higher fuel prices for October also contributed, along with an uptick of prices in various food items. Note that the impact of Severe Tropical Storm Kristine may still have to be felt this November round,” he said.

In October, pump price adjustments resulted in a net increase of P2.80 per liter for gasoline and P4.60 per liter for diesel as well as P3.25 per liter for kerosene.

Bank of the Philippine Islands lead economist Jun Neri also sees October inflation at 2.5 percent, equivalent to a 0.4 percent month-on-month increase.

“The previous month’s headline print was likely the lowest for this year due to fading base effects. Unfavorable weather conditions in October may have affected the price of some food items, especially vegetables and fruits,” he said.

Based on the latest bulletin from the Department of Agriculture, agricultural damage caused by Severe Tropical Storm Kristine amounted to P5.75 billion, displacing 131,661 farmers and fisherfolk and destroying over 100,000 hectares of farmlands.

The peso depreciation may have also fueled the increase in food costs, Neri said. Even though rice prices fell in October amid improving supply, the decline has not been significant enough as there are legal challenges in implementing the rice tariff cuts.

“Despite this anticipated uptick, we expect inflation to remain manageable in the next 12 months, barring new supply shocks,” he said.

Neri flagged upside risks to the inflation outlook such as the possibility of La Niña and African swine fever. Inflation also remains sensitive to climate conditions, but stable commodity prices amid China’s economic slowdown may offset these risks.

The BPI economist said that a rate cut from the BSP could happen in December as inflation is expected to remain manageable. However, external developments may also affect the central bank’s decision.

“The recent depreciation of the peso reflects the market’s concerns over the pace of the Federal Reserve’s rate cuts and the possibility that the Fed could pause,” he said.

He said that the peso could weaken further in the coming months driven by a stronger-than-expected US jobs report or a Republican victory in the upcoming US elections.

“The BSP may consider a pause in its rate cuts if the Fed doesn’t cut as anticipated,” Neri said. “The recent volatility in the markets highlights the need for prudence when it comes to rate cuts.”

“While inflation forecasts allow room for a cut, aggressive action may not be prudent in the current climate. Global and domestic supply shocks can alter the outlook for inflation quickly, making a cautious approach to rate cuts more suitable to maintain stability,” he added.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said inflation likely rose to 2.4 percent in October. This could bring full-year inflation to an average of 3.2 percent this year.

Ricafort said flood damage in hard-hit areas caused by Kristine could cause some temporary spike in inflation. However, this could be mitigated by the price freeze for 60 days in areas declared under state of calamity.

“Inflation could still remain at the two percent levels for the rest of 2024, though some seasonal pickup in prices is expected toward the Christmas holiday season amid increased demand/spending, but only to eventually go down upon crossing the new year,” he said.