ING Bank N.V. said the central bank’s “surprisingly high” 3.5-4% inflation estimate has raised expectations that monetary authorities may tighten policy as early as March.

“With such a high January inflation forecast, the market may become worried that inflation will accelerate faster than expected in the coming months,” Jose Mario I. Cuyegkeng, senior economist at ING Bank Manila, said in a report posted yesterday.

On Wednesday, the Bangko Sentral ng Pilipinas (BSP) said inflation likely rose to 3.5-4% in January on the back of higher crude and food prices as well as the higher taxes on selected goods under the new tax reform law.

“The increase in the prices of domestic petroleum products on account of higher global crude oil prices along with higher food prices due to weather-related disturbances could contribute to the rise in inflation for January 2018,” the BSP’s Department of Economic Research said in a statement.

“In addition, higher excise taxes on fuel, sugar-sweetened beverages with the implementation of the TRAIN this month, would lead to additional upward price pressures,” it added, referring to the Tax Reform for Acceleration and Inclusion act, which was passed in December.

The central bank’s inflation estimate for January will likely pick up from December’s 3.3% inflation, and above ING Bank’s forecast of 3.4%.

The January inflation estimate may hit the high end of the government’s full-year target range of 2-4%.

Mr. Cuyegkeng added that January inflation in line with the BSP forecast could raise inflation expectations, spurring the central bank to hike its interest rates “as early as their March meeting.”

“Our base case is for a rate hike at the May meeting,” Mr. Cuyegkeng added.

In a previous report, Mr. Cuyegkeng said BSP could also revise its 3.4% inflation estimate for 2018 in its policy meeting on Feb. 8.

The previous report posted mid-January said the possible full-year inflation forecast revision would reflect the central bank’s assessment of the tax reform’s second-round effects such as a possible increase in minimum fares for public transport and the possible domino effect on wages.

Official inflation data for January will be released on Feb. 6. — Karl Angelo N. Vidal

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