January inflation projects to jump to as high as of 8.3% – BSP

The Bangko Sentral ng Pilipinas (BSP) said that Philippines January inflation is projected to further accelerate with an average ranging from 7.5 percent to 8.3%. The said projection will possibly surpass December’s 8.1% which was thought to have been the peak.

In a statement, the BSP said that the increases in electricity rates, prices of petroleum products and key food items, as well as the approval of the increases in water rates and the annual rise in “sin” taxes were likely the factors behind the higher inflation rate.

These factors, the BSP added, would have overwhelmed the ones that, on the other hand, were pulling down prices such as lowered prices of cooking gas or LPG and the appreciation of the Philippine peso against the US dollar.

The peso closed at 54.64:$1 on Jan. 31, which was P1.11 less than 55.755:$1 on Dec. 31, 2022.

But Fitch Solutions in a commentary said that the rate of growth in the prices of goods and services in the Philippines is expected to ease downward from the 5.8 percent average recorded in 2022 to 5.4 percent in 2023 and ending this year at 2.7% in December.

 “The risk now is that inflation remains elevated at these levels for longer than anticipated, which will accelerate the erosion of household purchasing power,” Fitch Solutions said.

It added that in the Philippines as well as in many other markets, inflationary pressures remain high and the rate of price changes continues to be higher than the target of the BSP even if they are slowing down.

The BSP’s goal is to drive annual average inflation within the range of 2 to 4%. BSP believes that while this might not be met in 2023, it expects to achieve the goal by next year.

Meanwhile, in the January update of the International Monetary Fund’s (IMF) World Economic Outlook report, the IMF said that globally, 2023 will see inflation peaking amid low output growth.

Yet, the multilateral lender revised upward its 2023 global growth forecast to 2.9% from the 2.7% forecast last October, but it is still slower than the projected 3.4% growth in 2022.

IMF said. “The rise in central bank rates to fight inflation and Russia’s war in Ukraine continue to weigh on economic activity,”

It also expects global inflation to fall from 8.8% in 2022 to 6.6% in 2023 and 4.3% in 2024 respectively.

Fitch Solutions said that a faster fall in inflation compared with its forecast, might happen considering a stronger boost from pent-up demand in numerous economies.

On the other hand, inflation might be worse than the IMF’s forecast if severe health outcomes in China would hold back the recovery, Russia’s invasion of Ukraine would escalate, and tighter global financing conditions would worsen debt distress.

“Financial markets could also suddenly reprice in response to adverse inflation news, while further geopolitical fragmentation could hamper economic progress,” the IMF said.