Inflation in Philippines getting out of control possible rate hikes
2023.02.07 08:23
Inflation in Philippines getting out of control possible rate hikes
By Tiffany Smith
Budrigannews.com – In January, Philippine annual inflation surpassed expectations to reach a new 14-year high due to rising food costs, increasing the likelihood that the central bank will implement a larger interest rate increase to tame prices this month.
The statistics agency reported on Tuesday that the consumer price index (CPI) increased by 8.7% in January, which was significantly higher than the 7.7% predicted by a Reuters poll and the 8.1% rate in December, when the central bank anticipated that prices would reach their peak.
In addition, core inflation, which excludes volatile prices for food and fuel, increased to 7.4%, the highest level in more than two decades and an increase from December’s 6.9%, indicating that price pressures remain widespread.
After the data were released, the Philippine central bank stated that it remains focused on restoring inflation to the government’s target of 2%-4%. The central bank had predicted that January CPI would be between 7.5 percent and 8.3 percent.
The Bangko Sentral ng Pilipinas (BSP) released a statement on Tuesday stating, “The January 2023 inflation data points to the need for sustained efforts to combat price pressures, particularly non-monetary government measures.”
The BSP reiterated that it “stands ready to adjust its monetary policy” to anchor inflation expectations, saying on Saturday that it will focus on inflation rather than the Federal Reserve’s most recent 25-basis point hike at its rate-setting meeting on February 16.
According to ING economist Nicholas Mapa, who made the statement via Twitter, the BSP looks certain to raise interest rates by at least 25 basis points and with a larger 50 bps hike likely to be on the table given the faster-than-expected inflation rate in January.
To control inflation and maintain interest rate differentials between the United States and the Philippines in order to support the peso, the key policy rate is currently 5.5 percent and will rise by 350 basis points in 2022.
As of 0831 GMT, the peso was 1.3 percent lower against the dollar at 55.16, and the broader stock index of the Philippines ended the day 0.8% lower due to expectations of a larger rate hike.
Food inflation rose at an annual rate of 11.2% in January, the fastest rate since 2009, compared to 10.6% in the previous month and 1.6% in the same month last year. This was the primary factor in January’s explosive inflation.
President Ferdinand Marcos Jr., who is also the agriculture secretary, said it was “unfortunate” that inflation continued to rise, but a drop in the cost of fuel and imported agricultural products should slow the rate of price increases.
Marcos said, echoing the predictions made by his economic ministers, “We have already taken some measures so that the supply will be greater and so that will bring the prices down but that will take a little time.”
After the data, Finance Secretary Benjamin Diokno said that as the government intensifies efforts to increase food production, he anticipated that inflation would begin to slow in the first quarter.
