HEADLINE inflation will likely breach 6% this year and only settle within the central bank’s target range next year, First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) said.

In its latest Market Call released on Monday, FMIC and UA&P said they expect inflation to come in at 6.2% this year, above the Bangko Sentral ng Pilipinas’ (BSP) 6% full-year forecast.

Headline inflation eased to 4.9% in October, the weakest reading in three months. However, this marked the 19th straight month that inflation breached the central bank’s 2-4% target band.

In the 10 months to October, inflation averaged 6.4%.

FMIC and UA&P said inflation will likely return to the central bank’s 2-4% target band by the first quarter, barring any sudden surge in food prices.

“We now expect year-on-year inflation to go within the BSP’s 2-4% target by the first quarter of 2024, but may again exceed the ceiling if food prices remain elevated,” it said.

“Rice prices still have an upside risk if the government fails to address the emerging El Niño droughts,” it added.

The BSP sees inflation easing to 3.7% for 2024 and 3.2% for 2025.

“In the coming months, food price movements will likely dictate the pace of inflation since crude oil prices have tumbled by some 16% due to weak global demand,” it added.

Meanwhile, FMIC and UA&P retained their gross domestic product (GDP) forecast this year.

“All told, while the possibility of a slightly slower GDP uptick in the fourth quarter exists, full year growth should hold at 5.8%, which still exceeds most forecasts,” it said.

In the third quarter, the economy grew 5.9%. This was faster than 4.3% in the second quarter but weaker than the year-earlier 7.7%.

GDP growth averaged 5.5% in the first nine months. The economy would need to grow by 7.2% to hit the lower end of the government’s target.

The government is targeting 6-7% growth this year.

“The growth momentum should continue in the fourth quarter… as infrastructure spending has gained traction, while consumer spending should improve with southbound inflation rate,” it added.

FMIC and UA&P also expect the debt-to-GDP ratio to settle at 60.5% by the end of the year.

“National Government (NG) spending in the fourth quarter should remain robust despite the concern of the Department of Budget and Management’s to keep the lid on the debt-to-GDP ratio,” it added.

The NG’s debt as a share of GDP fell to 60.2% at the end of the third quarter, lower than the 61% at the end of the second quarter and the 63.6% posted a year earlier.

However, this still exceeds the 60% threshold considered by multilateral lenders to be manageable for developing economies.

The government expects the debt ratio to settle lower than the 61.4% under its medium-term fiscal framework. It is hoping to bring down the ratio to below 60% by 2025. — Luisa Maria Jacinta C. Jocson