High inflation rate in 2023 to the official target

Private economists in a survey by Bangko Sentral ng Pilipinas last month predicted inflation in 2023 would be 5.1%, missing the Monetary Board (MB) forecast of 4.5%.

Highlights from the December 15 MB meeting released on Thursday indicated that inflation expectations remained elevated ahead of a decision that day to hike the interest rate by 50 basis points.

The December poll also predicted economists would expect a result of 5.9 percent for 2022, higher than the official forecast of 5.8 percent. While average inflation for the year eventually hit the target, inflation expectations remain high and BSP officials indicated the possibility of further rate hikes.

The report indicated that economists’ expectations for 2022 and 2023 were higher than the 5.7 percent and 4.9 percent recorded in the previous month, adding that consumers and households also surveyed in the fourth quarter expect inflation to breach the government’s target of 2.0 to 4.0 percent for 2022. and 2023.

During the December meeting, the Muslim Brotherhood decided to keep its inflation forecast for 2022 at 5.8 percent but raised that for 2023 to 4.5 percent from 4.3 percent. The estimate for 2024 was trimmed to 2.8 percent from 3.1 percent.

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Risks to the inflation outlook remain strongly tilted to the upside in 2023 however [are] broadly balanced for 2024.”

Upside risks on the policy horizon have been identified as rising global food prices – which is attributable to the rising cost of fertilizers – and supply chain issues. Domestically, trade restrictions, storm surged fruit and vegetable prices, higher sugar prices, pending price hike petitions and potential wage increases have been flagged as likely to push inflation higher.

“Meanwhile, a weaker-than-expected global recovery remains the main downside risk to the outlook.”

A rate hike of 50 basis points in December pushed the total adjustments from 2022 to 350 basis points. The BSP’s overnight reverse repo rate is currently 5.5 per cent while the rates for the overnight deposit and overnight lending facility are 5.0 and 6.0 per cent respectively.

BSP Governor Felipe Medalla said on Wednesday that the increases could be announced again during the first meeting of the MB of the year on February 16.


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