BSP Medalla: Inflation will peak in September and October

MANILA, Philippines — Bangko Sentral ng Pilipinas Governor Felipe Medalla is optimistic that inflation will peak by September or October as markets around the world begin to price in recession fears.

Speaking at a Friday briefing hosted by the Management Association of the Philippines, Medalla made the case for his optimistic outlook. As it stands, inflation rose 6.4% year-on-year in July, with prices for consumer goods and services bearing the brunt of high fuel prices and a weak peso.

“The peak of inflation will come in September, October. World prices will start to fall partly because people will start expecting a US recession,” he said.

So far, inflation has averaged 4.7% since the beginning of the year.

The national government was wary of the pass-through effects of inflation. This meant that inflation could soon force sectors of the domestic economy to start raising prices to keep pace with tighter conditions.

The BSP has revised its inflation forecast this year, as the average for the whole year is expected to exceed the upper limit of the government’s 2-4% target at 5.4%.

Asked for comment, Nicholas Antonio Mapa, senior economist at ING Bank in Manila, predicted inflation would peak in October.

“The first half of the year, we were hit by the first cycle of inflation: mainly in imported energy and food inflation. In the second half of the year, we will be hit by second-round effects: adjustments to wages and transport fares, plus retailers raising prices as inflation expectations rise,” he said in a Viber message. .

High fuel prices, Russia’s invasion of Ukraine and a strong greenback have compounded pressures on the global supply chain in recent months.

Domini Velasquez, chief economist at China Banking Corp., agrees with Medalla’s outlook, noting that China features prominently in the inflation picture.

“…lower global oil prices due to recession fears in advanced economies as well as China’s strict zero Covid policy will largely contribute to slowing inflation. The effect of BSP monetary tightening could also start biting more into consumer demand and the overall price level by the end of the year,” she said in a Viber message.

The US economy is widely expected to slide into recession after the US Federal Reserve aggressively raised interest rates in recent months to calm an overheated economy.

For its part, the BSP tightened its key rate yesterday by 50 basis points, now at 3.75%. The central bank has raised its policy rate by a total of 175 basis points since the start of its monetary policy normalization in May.

Despite BSP’s hawkish stance, BSP has often repeated that successive rate hikes will not impede the country’s economic recovery from the pandemic. The national government is seeking to recover lost economic ground by reopening the economy earlier this year to facilitate growth.

The Marcos Jr. administration is also optimistic that the economy could grow 6.5 to 7.5 percent this year amid global headwinds that could hamper domestic economic growth.

“Global commodity prices could fall (they have already), unfortunately the second half of the inflationary storm in the Philippines is about to hit as the effects of the second round kick in,” Mapa said. .

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