The Bangko Sentral ng Pilipinas said Friday inflation in September likely rose to as high as 7.4 percent from 6.3 percent in August on higher food and electricity prices, and weaker peso.
The BSP said it expected the September 2022 inflation to settle within a range of 6.6 percent to 7.4 percent.
“Inflation for the month is expected to be driven by the increase in electricity rates and prices of key food commodities, as well as by the depreciation of the peso. This could be offset in part by the decline in local fuel prices and lower meat prices,” it said.
The peso touched the 59-per-dollar level on Sept. 29 as financial markets anticipate another huge interest rate hike by the US Federal Reserve in November. The peso closed at 58.625 against the greenback on Friday.
The BSP raised the policy rate by a total of 225 bps since the start of its hiking cycle in May to rein in the elevated inflation, the latest of which was on Sept. 22 when it raised the policy rates by another 50 basis points.
Fitch Solutions said with the US Fed likely to hike interest rates by a further 75 bps, after delivering its third straight rate increase of 75 bps on Sept. 21, the BSP was also expected to hike its policy rate to 5.00% by the end of 2022, up from its previous forecast of 4.50%.
Private sector economists expect inflation to peak at 6.7 percent by September or October, which could dampen the economic prospects in the second half.
Economists from the First Metro Investment Corp. and the University of Asia and the Pacific said in the September issue of the Market Call that the gross domestic product might grow by 6.5 percent in the fourth quarter.
“The inflation outlook, however, may put a damper in H2 [second-half] outlook, as it will likely remain above 6.5 percent in Q4 as the mild dip of -0.1 percent in August to 6.3 percent year on year from 6.4 percent in July,” they said.
“The second-round domestic effects of the sharp surge of crude oil prices in the first half have not completely played out. Besides, food inflation in the US and other advanced countries remains stubbornly high due to droughts and other supply issues,” they said.
The economy expanded by 7.8 percent in the first half, following the 8.2-percent growth in the first quarter and the 7.4 percent in the second quarter.
Inflation in August slightly eased to 6.3 percent from 6.4 percent in July, pulled down by slower increases in the prices of fuel and food and non-alcoholic beverages.
This brought the average inflation in the first eight months to 4.9 percent, above the government’s 2022 target range of 2 percent to 4 percent.