Inflation to stay above target ’til 2024
INFLATION is expected to remain above the 2.0- to 4.0-percent target this year and the next, a Monetary Board member said on Thursday.
“The risk-adjusted inflation forecasts showed above-target inflation for this year and 2024 as upside risks continue to manifest,” Romeo Bernardo said during an economic forum.
Inflation is expected to average 6.2 percent this year from the previous baseline forecast of 5.8 percent while the 2024 figure will likely reach 4.7 percent instead of 3.5 percent previously.
“The latest risk-adjusted forecasts are higher from 2023 and 2024 compared to the baseline forecast in the 21 September 2023 policy meeting due mainly to the higher-than-expected inflation outturn in September,” Bernardo said.
Still-high inflation last month, higher jeepney fares and the expected impact of the El Niño weather pattern will also keep price pressures elevated.
October’s 4.9-percent print remained above target but was down from September’s 6.1 percent. It also snapped a two-month run of consumer price hikes that began in August.
“The balance of risks to the inflation outlook continues to lean significantly toward the upside due mainly to the potential impact of higher transport charges, electricity rates, international oil prices and minimum wage adjustments in areas outside the NCR (National Captital Region),” Bernardo said.
He said the Monetary Board had recognized the urgent need for monetary action — an off-cycle interest rate hike last month brought the policy rate to 6.50 percent, the highest since 2007 — to prevent supply side pressures and increasing second-round effects from further dislodging inflationary expectations.
He stressed that the central bank was prepared for further follow-through action as necessary to bring inflation back to a target-consistent path.
“The Monetary Board has also noted that it will be necessary to keep monetary policy settings higher for longer until inflationary expectations are better anchored, and a sustained downward trend in inflation becomes evident,” Bernardo said.
He also warned that the rate adjustments would continue to weigh on economic growth over the near term.
“Since the impact of policy rate adjustments takes six to seven quarters, the growth impact of policy rate adjustments, which started in the second quarter of 2022 is projected to peak in the second half of 2024,” Bernardo said.
“The BSP continues to urge and support nonmonetary government measures which remain crucial in addressing persistent supply side pressures on inflation,” he added.