A vendor arranges eggs in boxes at a store along Blumentritt in Manila, Jan. 26. — PHILIPPINE STAR/WALTER BOLLOZOS

HEADLINE INFLATION likely cooled in January as weaker demand, the peso’s appreciation against the US dollar, and slower growth in food prices offset the rise in utility rates and pump prices.

A BusinessWorld poll of 15 economists last week yielded a median estimate of 7.6%, closer to the lower end of the 7.5% to 8.3% forecast range given by the Bangko Sentral ng Pilipinas (BSP) for January.    

If realized, the median estimate will be slower than the 14-year high print of 8.1% in December, but much faster than the 3% print in January 2022.

Analysts’ January 2023 inflation rate estimates

January would also mark the 10th straight month that inflation surpassed the BSP’s 2-4% target range.   

The Philippine Statistics Authority (PSA) will release January consumer price index (CPI) data on Feb. 7 (Tuesday).   

Analysts said consumer demand likely fell after the holidays, which would have been a factor in the quarter-on-quarter easing of inflation in January.

“We believe that the end of the ‘ber’ months, peso appreciation and lower LPG (liquefied petroleum gas) prices have likely offset price gains in other items,” ANZ Research economist Debalika Sarkar said in an e-mail.    

The local currency rebounded to the P54-a-dollar mark in January, closing the month at P54.64 on Jan. 31, up by P1.115 or 2.04% from its P55.755 finish on Dec. 29, 2022.    

Cooking gas prices also declined by P4.20 per kilogram last month after two straight months of price hikes.

“Inflation remained elevated in January due to additional emerging price pressures such as the approved water tariffs of MWC (Manila Water Co., Inc.) and Maynilad in addition to higher electricity rates and another consecutive round of fuel price increases,” Domini S. Velasquez, chief economist at China Banking Corp., said.

Metro Manila’s two main water concessionaires began implementing higher rates in January. Manila Water raised rates by P8.04 per cubic meter, while Maynilad hiked rates by P3.29 per cubic meter.    

Manila Electric Co. (Meralco) earlier said the overall rate for a typical household went up P0.6232 to P10.9001 per kilowatt-hour (kWh) in January.    

Fuel retailers also continued to hike pump prices in January. For the month, pump price adjustments stood at a net increase of P7.2 a liter for gasoline, P3.05 a liter for diesel, and P4.55 a liter for kerosene.       

Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said January inflation likely saw easing prices in some goods and services.    

“For instance, prices of onions already started to go down after the holiday season in December 2022; also in view of harvest season and some importation in January 2023 that fundamentally led to higher supply and lower prices,” Mr. Ricafort said.     

At end-January, the price of local red onions fell to P330 per kilogram from P720 per kilo in December 2022. Prices of local white onions also declined to P300 per kilo from P800 a month ago.    

“Our baseline view assumes that there would be no material commodity price spikes this year,” Philippine National Bank economist Alvin Joseph A. Arogo said in an e-mail.    

“Moreover, as pandemic savings are probably mostly used up in 2022, consumers should be more sensitive to inflation, which would help limit the magnitude of additional second-round price adjustments from the input costs surge last year,” he added.    

Finance Secretary Benjamin E. Diokno has said inflation likely peaked in December.    

“I think inflation has peaked. We look forward to inflation of about 4.5% this year and we’ll be back to where we were originally by 2024,” he told reporters on Friday.

He noted that the government will address the issues surrounding the agriculture sector, after supply issues drove prices higher last year.

The BSP expects headline inflation to gradually decelerate this year, falling within the 2-4% target range by the second half.

“With headline inflation peaking in December, we anticipate that a milder trajectory will emerge in the coming months. It will, however, gravitate into the official 2-4% official target range only in the second half of the year,” ANZ Research’s Ms. Sarkar said.

Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, said slower inflation would be driven by the “sharp reversal in the recent rise in food inflation.”

“The longer-term outlook for inflation this year remains positive, and we should expect to see a continued slowdown, with the headline rate returning to the BSP’s target range after the middle of this year, assuming no exogenous supply shock takes place,” he added.

Security Bank Corp. Chief Economist Robert Dan J. Roces said inflation is expected to slow by the second quarter due to higher base effects, a slowdown in consumption, and a stable peso.   

“With these and good growth figures, we can expect the central bank to downshift its hike pace to 25 basis points (bps) at each of its next two meetings to bring the RRP (reverse repurchase agreement) to 6%, followed by a pause,” he said.    

BSP Governor Felipe M. Medalla earlier flagged a 25-bp or 50-bp rate increase at its Feb. 16 meeting, citing the need to anchor inflation expectations.

“With policy differentials mattering less now given that the peso is ‘behaved,’ and inflation on a likely downward trajectory, the BSP might probably opt not to follow the US Fed if it hikes by 25 bps beyond 5% as signaled by Fed Chair Jerome Powell, should the latter’s forward guidance mean a long pause as well,” Mr. Roces added.    

Ms. Sarkar said she believes the BSP will deliver two more hikes of 25 bps each to bring the rate to 6% by March.

“Since inflation remains elevated and way off the BSP’s inflation target range of 2-4%, policy makers may prefer to nudge the policy rate closer to our view of 6% in the first quarter,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said.   

Mr. Asuncion said the BSP needs “to manage upbeat consumer demand which may delay faster disinflation.”

“And with BSP’s international reserves hardly robust unlike before, managing the exchange rate to deter any ‘overshooting risk’ (or narrowing interest rate differential) may require BSP policy rate adjustments in line with the US Fed,” he said.

The BSP sees headline inflation averaging 4.5% this year, lower than the actual 5.8% recorded in 2022. — Keisha B. Ta-asan