By Luz Wendy T. Noble, Reporter

HEADLINE INFLATION may remain elevated in the coming months due to continued supply-side pressures and a low base effect, analysts said.

“Inflation may not have reached its peak yet, and we do expect further breaches in the year-on-year headline print — notably in the second quarter of 2021 — as we’re coming from a low base, while the volatile components of the CPI (consumer price index) are at it again,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message.

The low base effect from last year may also result in inflation remaining at 4% levels and may peak at about 5% between April and October, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a text message.

Luzon was placed under the strictest form of lockdown from mid-March to end-May to curb the spread of the coronavirus disease 2019 (COVID-19). In 2020, inflation was slowest in May at 2.1%.

Headline inflation rose by 4.2% in January due to higher food and transport costs. This breached the 2-4% annual target set by the Bangko Sentral ng Pilipinas (BSP) and marked the fourth consecutive monthly rise since October 2020.

Mr. Roces said spikes in inflation are expected this year, with rising oil prices and disruptions in agricultural food supply. He said upward pressures caused by global oil prices might remain “as this is something beyond the authorities’ control.”

“The increased import volume for pork is meant to account for supply levels as a complementary solution on top of the price freeze,” he said, but warned that officials should continue to monitor how it will affect producers, wholesalers and retailers.

President Rodrigo R. Duterte gave the go signal to expand the minimum access volume allocation for pork imports to lower prices. He also imposed a price ceiling on pork and chicken products in Metro Manila for 60 days.

The central bank expects inflation this year to average 3.2%, faster than the 2.6% average in 2020.

In 2018, headline inflation went beyond the BSP’s inflation target and averaged 5.2% with the peak seen at 6.7% from September to October. This prompted the central bank to raise policy rates by 175 basis points (bps).

“Any breach of inflation above the [2-]4% inflation target in the coming months of 2021 could limit any further cuts in local policy rates and could even lead to some upward adjustments in the key policy rates,” Mr. Ricafort said.

The BSP will likely keep rates steady for now as it gauges conditions that affect the food basket, Mr. Roces said.

“We expect the central bank to refrain from policy adjustments until supply conditions become clear at least in the food basket in the coming months, especially with the harvest season approaching,” he added.

Food prices in January rose by 6.2% from 4.8% in December. Inflation for meat quickened to 17.1% from 10%, while vegetable prices surged by 21.2% from the prior month’s 19.7%.

The central bank is expected to keep the key policy rate at 2% as it waits for fiscal policy to do its part in taming inflation.

“A pause would still provide accommodation for the recovery while not feeding any unneeded inflationary pressure,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in a note on Monday. 

“At this juncture, keeping policy rates unchanged would allow BSP to provide the economy support for the recovery while at the same time safeguard against any budding demand side pressure, which appears to be negligible at the moment,” he added.

Seventeen of 18 analysts expect the Monetary Board to keep interest rates unchanged on Feb. 11, according to BusinessWorld poll last week.