I LATION could accelerate to as high as 6.5 percent this month due to higher food and fuel prices, the Bangko Sentral ng Pilipinas (BSP) said on Friday.
The central bank projected August inflation of 5.5 to 6.5 percent, and said upward price pressures would likely be “driven by higher rice, vegetable, fruit and fish prices, partly due to unfavorable weather conditions and elevated domestic fuel costs.”
These could be partly offset by lower meat prices, electricity rates and a stronger peso, it added.
The forecast compares with the 6.2-percent inflation recorded in July, which despite marking a third straight month of slower growth from April’s three-year high of 7.2 percent remains above the central bank’s 2.0- to 4.0-percent target.
“The BSP will remain vigilant and guided by incoming data, particularly on inflation and growth prospects,” it said.
The central bank added that it would continue to assess the impact of developments in the Middle East and recent weather disturbances on the country’s inflation and economic outlook.
The August forecast came a day after the BSP raised its benchmark interest rate by 25 basis points to 5.0 percent, citing risks to inflation from a possible severe El Niño event and higher-than-expected minimum wage adjustments.
Meanwhile, Citi expects the BSP to keep its policy rate unchanged during its next meeting in October before delivering another 25-basis-point increase in December.
The bank previously said that it expected the BSP’s next rate hike to come in October, not August, but pushed back its call following the BSP’s latest policy decision and inflation forecast revisions.
“We now call for a hawkish hold in October vs. previously a hike,” Citi said.
It said the BSP’s latest inflation projections appeared to have already incorporated significant risks from El Niño and minimum wage increases, raising the threshold for another immediate rate hike.
Citi expects August inflation to remain relatively benign but sees greater risks of inflation surprises emerging ahead of the BSP’s Dec. 17 policy meeting.
It expects the BSP to raise its policy rate by another 25 basis points to 5.25 percent in December to help anchor inflation expectations.
Citi said an October rate increase remained possible if August and September inflation significantly exceed expectations, particularly if food prices rise more sharply because of El Niño, diesel prices rebound, or peso weakness revives core inflation.
The Philippine Statistics Authority is scheduled to release the official August inflation data on Sept. 4.
