Philippine Inflation Hits 2-Year High, Limits Room for More Rate Cuts

Manila
A vendor wearing a face mask for protection against the coronavirus disease (COVID-19) rests in her fruit and vegetable stall in a public market in Quezon City, Metro Manila, Philippines, January 5, 2021. REUTERS/Eloisa Lopez

MANILA — Philippine annual inflation accelerated faster than expected to hit the highest level in two years in January, limiting the central bank’s room for further interest rate cuts to support the pandemic-hit economy.

The Bangko Sentral ng Pilipinas (BSP), which has said its current accommodative monetary stance is sufficient for a revival in growth, holds its first policy meeting of 2021 on Feb. 11. 

The Consumer Price Index rose 4.2% in January from a year earlier, driven mainly by the heavily-weighted food and non-alcoholic beverages index, the Philippine Statistics Authority said on Friday.

The headline figure, the highest since January 2019, beat the median forecast of 3.5% in a Reuters’ poll and was outside the central bank’s projected range of 3.3%-4.1% for the month and the full-year target of 2%-4%.

Core inflation, which excludes volatile food and fuel prices, was 3.4%, up from 3.3% in December.

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A vendor wearing a face mask for protection against the coronavirus disease (COVID-19) rests in her fruit and vegetable stall in a public market in Quezon City, Metro Manila, Philippines, January 5, 2021. REUTERS/Eloisa Lopez

Inflation for food and non-alcoholic beverages was 6.2% in January, at a time when pork prices soared due to a supply crunch caused by African swine fever outbreaks.

“Cutting (the policy rate) is already out of the question in the first half, maybe extending it in Q3,” said Emilio Neri, economist at Bank of the Philippine Islands, noting that a rate hike was now also “a possibility”.

The BSP’s policy rate is currently at a record low of 2% following a series of cuts totalling 200 basis points last year, when the economy suffered a record contraction.

“We expect BSP to refrain from adjusting policy in the near term,” said ING senior economist Nicholas Mapa, adding that the central bank’s next move could be a rate hike though this was unlikely to happen in 2021 or even next year.

Reporting by Neil Jerome Morales, Enrico Dela Cruz and Karen Lema; Editing by Ed Davies; Reuters

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