Inflation is expected to moderate further next year due to slower economic growth and other factors but continue to miss the target range, an analyst said.
"The more volatile items of food and fuel price inflation should also drop back," Gareth Leather, senior economist at Capital Economics, said.
"High agricultural prices should incentivize farmers to plant more crops, which should help to put downward pressure on food price inflation," he added.
"We also expect global oil prices to ease in response to subdued global economic demand and an increase in supply," Leather said.
But while inflation is projected to return to target ranges across emerging Asia by the second quarter of 2024, the Philippines presents a different scenario.
Leather expects that inflation will surpass the Bangko Sentral ng Pilipinas (BSP) target of 2.0 to 4.0 percent, averaging 6.5 percent this year and then decreasing to 4.5 percent in 2024.
Inflation is only expected to return to the target range, specifically at 3.5 percent, in 2025.
Consumer price growth, which reached a 14-year high of 8.7 percent in January, has since eased to 4.1 percent in November, coming close to the 2.0- to 4.0-percent goal.
A further moderation is expected in December, but the full-year average is anticipated to exceed 6.0 percent.
Within-target monthly results are expected to continue at the start of 2024 but upticks are likely given potential disruptions such as the impact of the El Niño weather pattern on food supplies and prices.
The BSP's risk-adjusted forecast for 2024 is 4.2 percent, slightly above the target, while the projection for 2025 is 3.5 percent.
Key interest rates have been raised by a total of 450 basis points since May of last year and monetary authorities have said that further tightening cannot be ruled out.
The BSP policy rate, which was last adjusted via an off-cycle 25-basis-point hike in late October as inflation picked up anew, currently stands at a 16-year high of 6.5 percent.
"Interest rates are at multiyear highs across the region and are only likely to come down slowly, while policymakers are looking to reduce fiscal support as they try to put government finances on a more stable footing," Leather noted.
With growth set to struggle and inflation likely to fall back, Leather said central banks could start cutting interest rates in the second quarter next year.
"In most cases, the size of the cuts will be relatively small, but in nearly all countries we are more dovish than the consensus," he added.
Leather said the Philippine central bank was likely to initiate rate cuts of 200 basis points in the coming year, maintaining the policy rate at 4.50 percent from 2024 to 2025.
Source: Manila Times