HEADLINE INFLATION is expected to ease by the second half on subsiding pressure from transport and food prices, Citigroup said.

“We expect inflation to ease in H2, due to waning effects from transport services (higher air and road transport fares from July 2020),” Citigroup, Inc. economist for the Philippines Nalin Chutchotitham said in a note Tuesday.

Inflation hit a two-year high of 4.2% in January, against the 3.5% posted in December and the year-earlier level of 2.9%.

The Bangko Sentral ng Pilipinas (BSP) raised its average inflation forecast to 4%, which is at the high end of its target range, from 3.2% previously. Citi’s forecast for inflation this year is for an average of 3.6%.

BSP officials have noted that upside pressure from the increase in prices of food and fuel will continue in the next few months, although they expect inflation to remain manageable.

For 2022, BSP estimates average inflation of 2.7%.

“Our indicator of inflation pervasiveness shows that only 20% weight of the CPI (consumer price index) basket have higher than 4% inflation. Meanwhile, other measures of inflation — core inflation, wholesale and retail price inflation — have been relatively stable,” Ms. Nalin said.

“The high unemployment should also keep wage inflation in check,” she added. In October, the jobless rate stood at 8.7%, equivalent to about 3.813 million unemployed.

Meanwhile, core inflation, which strips out volatile items like food and fuel, was 3.3% in January.

Meat and vegetable prices grew in the double digits last month, rising 17.1% and 21.2%, respectively. The government has moved to expand the minimum access volume allocation for pork imports to increase supply and imposed a 60-day price ceiling for pork and chicken products in Metro Manila.

However, the measures have been resisted by the industry, with some vendors opting out of selling pork while the price controls are in force.

Ms. Nalin said the authorities have been quicker to implement measures this time around compared to the rice price crisis in 2018.

“While upside risks remain, we think inflation expectations should be better-anchored this time around,” she said.

Ms. Nalin said the central bank’s options “are limited” and is likely to maintain policy rates until mid-2022.

Last week, the central bank kept the key policy rate at 2% and BSP officials said its stance will remain accommodative to help support the economic recovery. — Luz Wendy T. Noble