Peak inflation not yet reached
Inflation could go even higher before finally easing to a full-year rate still above the central bank's target, an economist said on Friday.
December's 14-year high of 8.1 percent — earlier expected to have been the peak of a 2022 inflation surge — was surpassed last month when consumer price growth accelerated to a higher-than-expected 8.7 percent.
Food and fuel prices were blamed, and the Bangko Sentral ng Pilipinas' (BSP) policymaking Monetary Board on Thursday was prompted to raise key interest rates by 50 basis points (bps) — double the previous forecast.
Core inflation — which strips out volatile food and energy items — has also gone up, to 7.4 percent in January from 6.9 percent a month earlier.
"We have not reached the peak," said Ateneo de Manila economist Alvin Ang, who noted other prices of other items in the inflation basket were also rising.
"We might be peaking this February before it starts to fall," he added. "However, it will end the year still above the [2.0- to] 4.0-percent target of the Monetary Board."
Ang, who chairs the Ateneo's Department of Economics, told a briefing organized by the university that "[prices of] non-regular items that people are consuming, excluding food and energy, are also rising."
"So, with that broad base increase in prices of food and services, almost everything now is rising, and this is putting a lot of pressure on wages."
Monetary Board member Bruce Tolentino, who also spoke at the briefing, agreed.
"High inflation rates are now creeping into wages. The Regional Wage Boards have started to approve regional wage hikes of an average of 13 percent," he said.
"These wage hikes are going to creep in on everything else in the economy," Tolentino added.
"We are forced, at the BSP, to aggressively tighten monetary policy. In 2022, we raised the interest rate by 350 bps to 5.5 and just yesterday (Thursday), we raised it by another 50 bps to 6.0 percent."
The BSP on Thursday tagged "higher-than-expected wage adjustments" this year as one of the factors — global food market uncertainties, continued domestic shortages in key food items and additional transport fare hikes were the others — that could push inflation higher.
The outlook for 2023 was raised to 6.1 percent, significantly higher than the 4.5-percent estimate as of December and also exceeding the 2022 result of 5.8 percent.
While a slowdown is expected this year, inflation is only expected to return to target next year at 3.1 percent.
The Monetary Board raised key interest rates by a total of 350 basis points last year. Additional increases totaling 50 bps were expected this year, bringing the BSP policy rate to 6.0 percent.
With inflation still showing no sign of slowing, some analysts expect further adjustments that will take the rate to as high as 6.25 percent or 6.5 percent this year.
Source: Manila Times