Inflation continued to pick up in December, hitting a fresh 14-year high, driven by higher food prices with vegetables and sugar rising by more than 30 percent.

Inflation increased to 8.1 percent from 8.0 percent in November 2022.

The Philippine Statistics Authority said this is the highest inflation rate reported for 2022 and the highest since November 2008.

Inflation in December in 2021 was lower at 3.1 percent.

“The higher inflation in December was primarily brought about by the faster year-on-year growth rate in the index of food and non-alcoholic beverages of 10.2 percent, from 10 percent the previous month. This was followed by restaurants and accommodation services whose inflation rate accelerated to 7 percent, from 6.5 percent. Came third was housing, water, electricity, gas and other fuels with inflation rate of 7.0 percent from 6.9 percent,” national statistician and civil registrar general Dennis Lapid said.

Other commodity groups that recorded higher year-on-year increments in December 2022 were alcoholic beverages and tobacco (10.7 percent); clothing and footwear (3.9 percent); furnishings, household equipment and routine household maintenance (4.8 percent); health (3.1 percent); recreation, sport and culture (3.9 percent); and personal care, and miscellaneous goods and services (4.5 percent).

Lower annual increase was observed in the transport index at 11.7 percent from 12.3 percent the previous month.

Inflation for information and communication, education services and financial services remained at their previous month’s rates, Lapid said.

“The higher year-on-year growth rates in the indices of vegetables, tubers, plantains, cooking bananas and pulses at 32.4 percent; rice at 3.4 percent; and fruits and nuts at 7.6 percent were the main contributors to the increase in food inflation. Sugar, confectionery and desserts index also rose 38.8 percent,” Lapid said.

Excluding selected food and energy items in the headline inflation, core inflation in December went up to 6.9 percent, from 6.5 percent in November 2022.

Core inflation in December was observed at 1.8 percent.

Above target

The average inflation rate for 2022 stood at 5.8 percent, higher than the 2021 average inflation rate of 3.9 percent.

This is way above the 2022 target range set by the government of between 2 and 4 percent.

Felipe Medalla, Bangko Sentral ng Pilipinas (BSP) governor, however said the December outturn is within the BSP’s forecast range of 7.8 to 8.6 percent and “is consistent with the assessment of elevated inflation could peak in December before decelerating in the succeeding months due to easing global oil and non-oil prices, negative base effects, and as the impact of BSP’s cumulative policy rate adjustments work its way to the economy.”

“The risks to the inflation outlook remain tilted to the upside for 2023 but are seen to be broadly balanced for 2024. Upside risks continue to dominate the inflation outlook up to 2023 while remaining broadly balanced in 2024,” Medalla said.

The government has set the same inflation target range of between 2 and 4 percent for this year and next.

Medalla said the expected upside risks to inflation over the policy horizon “stem mainly from elevated international food prices due to high fertilizer prices and supply chain constraints.”

“On the domestic front, trade restrictions, increased prices of fruits and vegetables due to weather disturbances, higher sugar prices, pending petitions for transport fare hikes, as well as potential wage adjustments in 2023 could push inflation upwards,” Medalla said.

He said the impact of a weaker-than-expected global economic recovery continues to be the primary downside risk to the outlook.

“The BSP remains prepared to take all monetary policy action necessary to bring inflation back to a target-consistent path over the medium-term. The BSP also continues to support the timely implementation of non-monetary government measures to mitigate the impact of persistent supply-side pressures on inflation,” Medalla said.

Top priority

Arsenio Balisacan, National Economic and Development Authority (NEDA) secretary, said “protecting the purchasing power of Filipinos remains on top of the government’s priorities as domestic and global headwinds continue to be a challenge.”

“As part of the 8-point Socioeconomic Agenda of the Marcos Administration and as laid out in the Philippine Development Plan (PDP) 2023-2028, the government will continue to prioritize addressing the impact of inflation as it remains to be a challenge not only in the country, but throughout the globe,” Balisacan said.

He likewise noted the timely decision of President Ferdinand Marcos Jr. to extend the validity of the reduced import rate duties on various products such as pork, rice, corn and coal until December 2023.

“Executive Order No. 10, s 2022 will continue to provide diversified sources of food and agricultural inputs in the short term. The operational intervention, however, is to ensure food security by boosting food production, improving farm-to-market connectivity, and investing in disaster resilience, climate adaptation measures, and coordination mechanisms,” Balisacan added.

More rate hikes

Michael Ricafort, Rizal Commercial Banking Corp. chief economist, said “local policy rates would still likely move towards 6 percent levels by early 2023.”

“Local rate hikes and other measures would still be deployed from the policy toolkit to stabilize both the peso and overall inflation, if needed, especially in the quest to bring down inflation back to the 2 to 4 percent target range in fulfilling the mandate of stable prices that is conducive to long-term economic growth and development,” Ricafort said.

After noting the further uptick in prices of major consumer prices in November, the Monetary Board  last month  raised the interest rate on the BSP’s overnight reverse repurchase facility by 50 basis points (bps) to 5.5 percent.

This is the highest in more than 14 years or since November 2008, when it was at 6 percent.

The interest rates on the overnight deposit and lending facilities were also set to 5 percent and 6 percent, respectively.

“Seasonal increase in demand during the holiday season in December may have led to some pickup in prices, but expected to seasonally ease after the holidays upon crossing the new year. Prices have already corrected lower for some food and agricultural products, including onions, after the New Year holiday. Thus, still relatively high inflation at new 14-year highs recently would still support and justify further local policy rate hikes that could still possibly match future Fed rate hikes to help stabilize the peso exchange rate and, in turn, overall inflation,” Ricafort said.

Jun Neri, Bank of the Philippine Islands lead economist, said the BSP may need to hike its policy rate further in the first half of the year.

“Recent indicators have shown that demand remains strong as consumers continue to engage in revenge spending, and there might be a need to temper this through rate hikes in order to guide inflation back to the preferred path. Moreover, the hiking cycle of the Federal Reserve has not ended. The central bank will likely continue to hike in the next two quarters,” Neri said.

However, Neri said the direction of interest rates could change in the second half of 2023, depending on what the Fed will do.

“If a recession in the US happens, the FOMC might decide to take back some of their hikes and bring down the Fed funds rate closer to 3 percent. In this scenario, the BSP policy rate might peak at around 6.5 percent in 2023. The BSP will likely deliver their own cuts following the Fed, but still maintaining the 100 to 200 bps differential with US rates. The BSP policy rate could go down to 4.75 percent in the latter part of 2023 if this happens,” Neri said.

Ricafort cautioned that further hikes in local policy rates “at some point, could become a drag on loan growth and overall economic growth amid much higher borrowing costs/financing costs.”

“There was never an instance wherein the local policy rate (now at 5.50 percent) is lower than the Fed Funds Rate (now at 4.50 percent), at least over the past 20 years or even before that, in view of the difference in the credit ratings of the US and the Philippines as well as the difference in the long-term inflation outlook of the two countries. Higher local policy rates would lead to some increase in borrowing costs that could lead to lower earnings and valuations, as well as slow down the economy as an unintended consequence in the quest to fight off inflationary pressures,” Ricafort noted.

After noting the further uptick in prices of major consumer prices in November, the Monetary Board decided yesterday to raise the interest rate on the Bangko Sentral ng Pilipinas’ overnight reverse repurchase facility by 50 basis points to 5.5 percent, effective today.

This is the highest in more than 14 years or since November 2008, when it was at 6 percent.

The interest rates on the overnight deposit and lending facilities was also set to 5 percent and 6 percent, respectively.

Felipe Medalla, BSP Governor and Monetary Board chief, said the central bank’s latest baseline forecasts show average inflation is still projected to breach the upper end of the 2-4 percent target range for 2022 and 2023 at 5.8 percent and 4.5 percent, respectively.

However, the forecast for 2024 fell to 2.8 percent “owing mainly to the further easing in oil prices, peso appreciation, and the slightly lower domestic growth outlook resulting in part from the BSP’s cumulative policy rate adjustments.”

This is the seventh consecutive tightening action by the Monetary Board this year to combat broadening price pressures.  Prior to yesterday’s announcement, the key rates have been raised by a total of 300 bps.

Yesterday’s tweak on the monetary policy stance came after the US Federal Reserve also hiked its key rates by 50 basis points.

“The Monetary Board arrived at its decision after noting the further uptick in headline and the sharp rise in core inflation in November amid pent-up demand. Moreover, upside risks continue to dominate the inflation outlook up to 2023 while remaining broadly balanced in 2024,” Medalla said.

He added  the expected upside risks to inflation over the policy horizon “stem mainly from elevated international food prices due to high fertilizer prices and supply chain constraints.”

On the domestic front, Medalla said trade restrictions, increased prices of fruits and vegetables due to weather disturbances, higher sugar prices, pending petitions for transport fare hikes, as well as potential wage adjustments in 2023 could push inflation upwards.

He stressed that the impact of a weaker-than-expected global economic recovery continues to be the primary downside risk to the outlook.

“Amid broad-based inflation pressures, persistent upside risks to inflation, and elevated inflation expectations, the Monetary Board deems it necessary to take aggressive monetary action to bring headline inflation back to within target as soon as possible. At the same time, an adjustment in the policy interest rate will continue to provide a cushion against external spillovers amid tighter global financial conditions,” Medalla said.

Michael Ricafort, RCBC chief economist, said further local policy rate hikes could still be possible for the coming months, as supported by generally stronger economic data and also as a function of future Fed rate hikes as well as the behavior of the peso exchange rate.

“If US inflation significantly eases further towards the 2 percent target in the coming months of 2023, there is a chance for Fed rate cuts to start in latter part 2023 and into 2024, as also expected in the financial markets.  So cuts in BSP policy rates are expected to follow any Fed rate cuts, prospectively,” Ricafort said.

Ricafort stressed that despite the BSP rate hikes in recent months, “loan growth remained resilient and continued to grow to the fastest pace in nearly four years at more than 13 percent year-on-year, largely due to the further reopening of the economy towards greater normalcy, with no lockdowns so far this year, thereby improving the ability to pay loans by borrowers.”

He added that despite the local policy rate hikes in recent months, the economic reopening narrative led to improved asset quality of banks for the coming months of 2023.

“However, further hikes in local policy rates, at some point, could become a drag on loan growth and overall economic growth amid much higher borrowing costs,” Ricafort said.

He said Higher local policy rates would lead to some increase in borrowing costs that could lead to lower earnings and valuations, as well as slow down the economy as an unintended consequence in the quest to fight off inflationary pressures.

Prices of key consumer goods continued to surge in November, hitting a 14-year high, as food, non-alcoholic beverages, electricity and transport services remain costly nationwide.

Inflation accelerated to 8 percent in November from 7.7 percent the previous month, the fastest recorded inflation since November 2008.

The country’s average inflation rate stood at 5.6 percent, way over the government’s target range of between 2 and 4 percent.

Core inflation, which excludes selected food and energy items in the headline inflation, also increased to 6.5 percent from 5.9 percent in October.

President Marcos Jr.  is confident the Philippines is on track to maintain its strong economic performance and is expected to reach its annual growth target of 6.5 percent to 7.5 percent even while the inflation is “running rampant and out of control.”

The President, in addressing the 11th Arangkada Philippines Forum 2022 held at Marriott Hotel, Pasay City, said the country continues on its road to recover from the negative impact of the coronavirus disease () pandemic which is proven by the “healthy” growth rate,” the stronger peso compared to other currencies, and the “quite reasonable” unemployment rate.

“The country is on track to maintain a strong economic performance and achieve the government’s growth target…However, on the other side of the coin, there is still inflation that is running rampant and out of control,” Marcos said.

He said as the main drivers of that inflation are imported, “import substitution is still a good idea not only for foreign exchange reserves but also to keep our inflation rate down.”

 He also mentioned the need to strengthen and improve the manufacturing sector, particularly the domestic market and need for capital intensive investments.

The Philippine Statistics Authority (PSA) yesterday said the sustained acceleration of inflation “was mainly due to the higher year-on-year growth rate in the index of food and non-alcoholic beverages at 10 percent, from 9.4 percent in October.”

PSA also attributed the uptrend to the higher annual increment in the index of restaurants and accommodation services at 6.5 percent, from 5.7 percent the previous month.

Other price indexes that surged include alcoholic beverages and tobacco; clothing and footwear; furnishings, household equipment and routine household maintenance; health; information and communication; recreation, sport and culture; education services; and personal care, and miscellaneous goods and services.

Slower year-on-year increases were observed in the indices of housing, water, electricity, gas and other fuels and transport at 12.3 percent.

Risks remain tilted

Felipe Medalla, Bangko Sentral ng Pilipinas (BSP) governor, said inflation is “projected to decelerate in the subsequent months due to easing global oil and non-oil prices, negative base effects, and as the impact of BSP’s cumulative policy rate adjustments work its way to the economy.”

“The November outturn is within the BSP’s forecast range of 7.4 to 8.2 percent. The risks to the inflation outlook remain tilted to the upside for 2023 but are seen to be broadly balanced for 2024,” Medalla said.

He said the key upside risks are the potential impact on international food prices of higher fertilizer prices, trade restrictions and adverse global weather conditions.

“Higher food prices from further domestic weather-related disturbances and supply disruptions in key food commodities such as sugar and meat, as well as pending petitions for transport fare hikes were also identified as upside risks to the inflation outlook in the latest round. Meanwhile, the impact of a weaker-than-expected global economic recovery is the primary downside risk to the outlook,” Medalla said.

PSA data showed food inflation at the national level rose further to 10.3 percent from 9.8 percent in October.

The uptick in the food inflation was primarily influenced by the higher annual growths in the vegetables, tubers, plantains, cooking bananas and pulses index at 25.8 percent; and rice index at 3.1 percent.

Faster annual increments were also noted in flour, bread and other bakery products, pasta products, and other cereals; milk, other dairy products and eggs; fruits and nuts; sugar, confectionery and desserts; and ready-made food and other food products.

Likely the peak

Michael Ricafort, RCBC chief economist, said there is a chance year-on-year inflation “could have already reached the peak in the fourth quarter and could start to ease gradually.”

“(Inflation) could even ease year-on-year significantly, especially starting first quarter (of next year) due to higher base/denominator effects, as the peak in global crude oil prices in early March 2022 already significantly corrected lower. Furthermore, year-on-year inflation would mathematically ease further in the second half of 2023 due to much higher base/denominator effects, in view of the anniversary of wage hikes and transport fare hikes starting June-July 2022 that led to second-round inflation effects,” Ricafort said.

He said the November surge was partly due to Tropical Storm Paeng’s damage on hard-hit agricultural areas, continued second-round inflation effects as well as some increase in demand in preparation for the holiday season — all of which led to higher food prices and overall inflation.

Important leading indicators for global and local inflation, Ricafort said, include other major global commodity prices such as wheat, soybean, natural gas, coal, iron, steel, copper and nickel which eased in recent weeks “could help ease inflationary pressures for the coming months.”

More policy actions

Medalla said the Monetary Board, which he also chairs, will continue to assess the country’s inflation outlook and macroeconomic prospects in its monetary policy meeting on December 15.

“The BSP remains prepared to take all further monetary policy actions necessary to bring inflation back to a target-consistent path over the medium-term. The BSP is also reassured by the timely implementation of non-monetary government measures to mitigate the impact of persistent supply-side pressures on inflation,” Medalla said.

As prices continue to rise, the Monetary Board last month hiked the key rates of the BSP by 75 basis points, bringing it to its highest in almost 14 years.

The interest rate on the BSP’s overnight reverse repurchase facility now stands at 5.0 percent. The interest rates on the overnight deposit and lending facilities now stand at 4.5 percent and 5.5 percent, respectively.

Medalla said the latest baseline forecasts indicate a higher inflation path over the policy horizon, with average inflation breaching the upper end of the 2-4 percent target range in both 2022 and 2023 and possibly hitting 5.8 percent and 4.3 percent, respectively. The forecast for 2024 has also risen slightly to 3.1 percent.

Ricafort said, “Further local policy rate hikes could still be possible for the coming months as supported by generally strong economic data.”

He added that the Monetary Board will likely, again, mirror the move of the Federal Reserve which is expected to raise US key rates by another 50 basis points on December 14.

“There was never an instance wherein the local policy rate is lower than the Fed Funds Rate (now at 4.00 percent) at least over the past 20 years or even before that, in view of the difference in the credit ratings of the US and the Philippines, as well as the difference in the long-term inflation outlook of the two countries,” Ricafort said.

He said higher local policy rates would lead to some increase in borrowing costs that could lead to lower earnings and valuations, as well as slow down the economy as an unintended consequence in the quest to fight off inflationary pressures.

As earlier announced, the policymaking Monetary Board yesterday hiked the key rates of the Bangko Sentral ng Pilipinas (BSP) by 75 basis points (bps), bringing it to its highest in almost 14 years, as inflation continues to rise.

Effective today, the interest rate on the BSP’s overnight reverse repurchase facility now stands at 5 percent, a half-percentage point lower than the 5.5 percent in December 2008, at the height of the financial crisis that left global banks holding trillions of dollars of worthless investments in subprime mortgages.

The interest rates on the overnight deposit and lending facilities now stand at 4.5 percent and 5.5 percent, respectively.

Felipe Medalla, BSP governor and Monetary Board chief, said latest baseline forecasts indicate a higher inflation path over the policy horizon, with average inflation breaching the upper end of the 2 to 4 percent target range in both 2022 and 2023 and possibly hitting 5.8 percent and 4.3 percent, respectively. The forecast for 2024 has also been adjusted upwardsto 3.1 percent.

Inflation climbed 7.7 percent in October, the fastest rise since December 2008, due mainly to the faster price increases of food commodities.

“The Board will continue to take all necessary action to bring inflation back within the target band over the medium term, in keeping with its primary mandate to sustain price and financial stability,” Medalla said.

In deciding to raise the policy interest rate anew, Medalla said the Monetary Board noted that core inflation has risen sharply in October, “indicating stronger pass-through of elevated food and energy prices as well as demand-side impulses on inflation.”

“The risks to the inflation outlook lean strongly toward the upside until 2023 while remaining broadly balanced in 2024,” Medalla said.

He said upside risks are associated with elevated international food prices owing to higher fertilizer costs, trade restrictions and adverse weather conditions.

On the domestic front, Medalla said the impact of weather disturbances on the prices of fruits and vegetables, supply disruptions in key food commodities such as sugar and meat, as well as pending petitions for transport fare hikes could also exert upward pressures on inflation.

“The impact of a weaker-than-expected global economic recovery, meanwhile, continues to be the main downside risk to the outlook,” Medalla said.

“Given the increased likelihood of further second-round effects, persistent inflationary pressures, and the predominance of upside risks to the inflation outlook, the Monetary Board recognized the need for aggressive monetary policy action to safeguard price stability,” Medalla added.

He explained that with the strong growth of the economy in the third quarter of 2022, domestic demand is seen to hold firm owing to improved employment outturns, investment activity and consumer spending.

“A sizeable adjustment in the policy interest rate will help insulate the economy from external headwinds and exchange rate fluctuations that could further entrench price pressures and potentially dislodge inflation expectations,” Medalla said.

“The Monetary Board is also reassured by the timely non-monetary government interventions to mitigate the impact of persistent supply-side pressures on commodity prices, including those aimed at alleviating supply shortages and strengthening farm productivity,” he added.

This is the sixth consecutive tightening action by the Monetary Board this year to combat broadening price pressures. Prior to yesterday’s announcement, the key rates have been raised by a total of 225 bps.

Yesterday’s tweak on the monetary policy stance was expected as it was already announced by Medalla on November 4, after the US Federal Reserve also hiked its key rates by 75 bps.

Domini Velasquez, China Bank chief economist, said the BSP will remain aggressive as it tries to anchor rising inflation.

“It is inevitable that the BSP will keep its 100-bp interest rate differential with the Fed. An An elevated inflation outlook in 2023, set to be the 3rd year in a row, using 2012 prices for 2021, that inflation will breach the BSP’s 4 percent target, will compel the central bank to keep interest rates high throughout most of 2023.. A possible cut might only come in the fourth quarter as inflation falls within target in the latter half of the year,” Velasquez said.

Michael Ricafort, RCBC chief economist, said further local policy rate hikes could still be possible for the coming months, “as supported by generally stronger economic data; also as a function of future Fed rate hikes as well as the behavior of the peso exchange rate, going forward.”

“There is a chance that year-on-year inflation could still peak at 8 percent in the fourth quarter of this year and could start to ease gradually thereafter and could even ease year-on-year significantly due to higher base effects,” Ricafort said.

“However, this could be offset by the recent storm damage by Tropical Storm Paeng for the month of November that could lead to some pickup in agricultural prices and overall inflation especially in hard-hit areas, as well as some seasonal increase in demand and prices of Christmas holiday-related products towards December, but only to go down after the holiday season by early January,” he added.

“Thus, further local policy rate hikes could still be possible for the coming months, as supported by generally strong economic data; also as a function of future Fed rate hikes as well as the behavior of the peso exchange rate, going forward,” Ricafort also said.

He said higher local policy rates would lead to some increase in financing costs that could lead to lower earnings and valuations, as well as slow down the economy as an unintended consequence in the quest to fight off inflationary pressures.

In another unprecedented move, the Monetary Board yesterday announced it will raise the key rates of the Bangko Sentral ng Pilipinas (BSP) by a giant 75 basis points (bps), right after the US Federal Reserve hiked by as much its monetary policy settings.

But Felipe Medalla, Monetary Board chief and BSP governor, said the action is not “off-cycle” as the rate hike will take effect on November 17, the next scheduled meeting of the Monetary Board.

“The BSP deems it necessary to maintain the interest rate differential prevailing before the most recent Fed rate hike, in line with its price stability mandate and the need to temper any impact on the country’s exchange rate of the most recent Fed rate hike,” Medalla said.

He said by matching the Fed’s rate hike, “the BSP reiterates its strong commitment to its mandate of maintaining price stability by aggressively dealing with inflationary pressures stemming from local and global factors.”

“The BSP remains vigilant in monitoring all risks to the inflation outlook and is prepared to take necessary policy actions to bring inflation toward a target-consistent path, wherein the average year-on-year headline inflation will be within the target band of 2 to 4 percent in the second half of 2023 and in the full year of 2024,” Medalla said.

The move will bring the BSP’s overnight reverse repurchase facility from the current 4.25 percent to 5 percent. The interest rates on the overnight deposit and lending facilities will also be raised by 75 bps.

This will be the sixth consecutive tightening action by the Monetary Board this year to combat broadening price pressures. Prior to yesterday’s announcement, the key rates have been raised by a total of 225 bps.

The announcement also came after the BSP released on Monday its month-ahead inflation forecast.

The BSP projects October 2022 inflation to settle within the range of 7.1 to 7.9 percent, much faster than September’s four-year high of 6.9 percent.

BSP said inflation pressures in October “emanated from transport fare hikes, elevated domestic petroleum prices, higher agricultural commodity prices due to recent typhoons, and the depreciation of the peso.”

Reacting to yesterday’s announcement, Michael Ricafort,

RCBC chief economist, said the move was “unprecedented in a positive manner.”

“The clear and specific signals from local authorities have been unprecedented in a positive manner, in terms of greater transparency and forward-looking in nature, thereby promoting greater stability for the local economy and financial markets, as well as creating an environment more conducive for better planning and preparations for businesses/industries, consumers, other institutions, and the general public,” Ricafort said.

He said the announcement will help “stabilize the peso exchange rate, actual inflation, and inflation expectations, on top of other measures in the policy tool kit.”

Ricafort sees the key local policy rate by end-2022 at between 5.5 and 6 percent, “as a function of further Fed rate hikes and the trend in the US inflation as one of the most important data being monitored, as well as the behavior of the peso exchange rate vis-a-vis other currencies.”

Domini Velasquez, China Bank chief economist, said they were expecting the Monetary Board to follow the Fed’s movement with a 75 bps hike for November.

“The statement of Medalla before markets opened, giving certainty on the size of the rate hike on November 17, likely tried to preempt the foreign exchange market from reacting, i.e., peso depreciating before the monetary board meeting,” Velasquez said.

“Crucial in (US Fed chief Jerome) Powell’s statement is that they see the terminal rate of the US higher than their September meeting. BSP will need to increase policy rates until next year if they will maintain the 100 bps interest rate differential,” she added.

Prices of key consumer items continued to rise in September, the fastest in four years, and the country’s economic managers said it will remain elevated for the rest of this year.

Inflation accelerated to 6.9 percent from 6.3 percent in August 2022 and the highest recorded inflation since October 2018.

Average rate from January to September 2022 now stands at 5.1 percent, breaching the tip of the central bank’s full-year target range of between 2 and 4 percent by more than a percentage point.

Last year, inflation rate was at 4.2 percent.

Dennis Mapa, national statistician and civil registrar general, said the acceleration in the country’s inflation rate “was primarily due to the higher annual growth rate in the index for food and non-alcoholic beverages.”

This was followed by housing, water, electricity, gas and other fuels.

Also contributing to the uptrend were the higher annual increases in the indices of alcoholic beverages and tobacco; clothing and footwear; furnishings, household equipment and routine household maintenance; information and communication; recreation, sport and culture; restaurants and accommodation services; and personal care, and miscellaneous goods and services.

“Lower annual increments were observed in the indices of health, transport and education services,” Mapa said.

Core inflation, which excludes volatile food and energy items, was lower at 4.5 percent from 4.6 percent the previous month. In September 2021, core inflation was at 2.6 percent.

September’s outturn, however, was within the forecast range for the month of Bangko Sentral ng Pilipinas (BSP).

Felipe Medalla, BSP governor, said it is “consistent with the BSP’s assessment of inflation remaining above target over the near term as price pressures broaden and signs of further adverse second-round effects emerge.”

“Upside risks continue to dominate the inflation outlook in the near term. Price pressures could come from the potential impact of higher global non-oil prices, pending petitions for further transport fare hikes, the impact of weather disturbances on prices of food items, as well as the sharp increase in the price of sugar. The impact of a weaker-than-expected global economic recovery continues to be the main downside risk to the outlook. Nevertheless, inflation risks are seen to be broadly balanced in the medium-term as global commodity prices ease going forward,” Medalla said.

Medalla, also the head of the policymaking Monetary Board, said the BSP’s recent policy actions “are intended to bring inflation and inflation expectations back to the target to ensure the balanced and sustainable growth of the economy in the medium term.”

To combat inflation, the Monetary Board, during its latest monetary policy stance meeting,  raised the overnight reverse repurchase facility of the BSP again by another half-percentage point to 4.25 percent.

Accordingly, the interest rates on the overnight deposit and lending facilities were raised to 3.75 percent and 4.75 percent, respectively.

This is the fifth consecutive tightening action by the Monetary Board this year. The key rates have been raised by a total of 225 basis points to combat broadening price pressures.

Medalla said BSP is prepared “to take further policy actions to bring inflation toward a target-consistent path over the medium term, consistent with its primary objective to promote price stability.”

“The BSP also continues to urge timely implementation of non-monetary government interventions to mitigate the impact of persistent supply-side pressures on commodity prices. The BSP will continue to carefully monitor and assess pertinent economic developments that could affect the price dynamics and growth prospects of the country,” Medalla said.

Benjamin Diokno, finance secretary, said “inflation is expected to remain elevated for the last quarter of 2022 with the recent fare hike and the impact of typhoon Karding on food supply.”

However, Diokno said inflation is still seen to fall within the 4.5 to 5.5 percent assumption of the Development Budget Coordination Committee for 2022.

“To manage inflation, the continued timely implementation of government measures is crucial in mitigating the impact of persistent supply-side pressures on food and other commodity prices,” Diokno said.

He added the government intensifies its measures to help increase the domestic supply “by ramping up local production, ensuring timely importation of goods, fertilizers, and raw materials, and improving distribution efficiency.”

“The country needs to produce and import the needed commodities. Given regional production and price disparities, it is equally important that these goods are efficiently distributed. The government is already looking at regions where inflation is high and which goods are driving inflation to address any bottlenecks,” Diokno said.

Arsenio Balisacan, socioeconomic planning secretary, noted the government’s  commitment “to ensuring sufficient food supply and sustained subsidies to aid Filipinos in accessing affordable goods and services as inflation persists due to domestic and global pressures.”

“This trend is observed in other countries as well, given the same experience of subdued demand or a low base the past year, because of COVID, and the external pressures this year from commodity prices, logistics bottlenecks, weather shocks, and wide swings in the exchange rate against the US dollar. The government’s priority is to make sure that there is sufficient and affordable food supply for every Filipino family,” Balisacan said.

Aside from support to the agriculture sector, which was heavily damaged by Typhoon Karding recently, Balisacan emphasized the need to fast-track the distribution of targeted subsidies for low-income households and public utility drivers.

Mapa said inflation for food at the national level rose to 7.7 percent in September 2022 from 6.5 percent in August 2022.

Faster annual growth rates were also seen in the following food groups: rice, 2.4 percent; corn, 26.2 percent; flour, bread and other bakery products, pasta products and other cereals, 9 percent; fish and other seafood, 9.1 percent; milk, other dairy products and eggs, 7.6 percent; oils and fats, 20.1 percent; sugar, confectionery and desserts, 30.2 percent; and ready-made food and other food products, 6.7 percent.

On the contrary, slower annual growth rates were observed in the indices of meat and other parts of slaughtered land animals at 9 percent, and fruits and nuts at 3.8 percent.

Mapa said inflation in the National Capital Region (NCR) rose to 6.5 percent from 5.7 percent in August 2022, brought about by the higher annual hike in the food and non-alcoholic beverages index.

Also contributing to the uptrend in the inflation in NCR were the higher annual increases in the indices of housing, water, electricity, gas and other fuels; recreation, sport and culture; and restaurants and accommodation services.

Following the trend at the national level and in NCR, inflation in areas outside NCR increased to 7 percent from 6.5 percent in August 2022, primarily due to the higher annual growths in the indices of food and non-alcoholic beverages; housing, water, electricity, gas and other fuels; and restaurants and accommodation services.

Except for Eastern Visayas, all regions in areas outside NCR recorded higher inflation rates in September. Zamboanga Peninsula and Davao Region both had the highest inflation rate of 9.6 percent, while Cagayan Valley and Calabarzon had the lowest inflation rate at 5.9 percent.

The peso closed higher yesterday, gaining 65 centavos from Monday’s new all-time low of 59 to the US dollar, after the Bangko Sentral ng Pilipinas (BSP) issued a plea to those “who have the means not to take undue advantage of changing market conditions.”

The local currency opened higher at 58.88 then reached a low of 58.98.

Trading volume was bigger at $779.1 million from the previous day’s close of $666.7 million.

BSP said it is “committed to enhancing the well-being of Filipinos through a financial system that addresses the funding needs of the public while managing risks.”

“We ask those who have the means not to take undue advantage of changing market conditions. This does not help the Philippine peso; it does not help the Philippines. What we can do is to bring all transactions into an organized and accessible formal market that offers consumer protection,” BSP added.

BSP stressed that market conditions around the world are challenging.

“Working together allows us to sustain our functioning financial market while appropriately managing the developing risks,” BSP said, adding there are many reasons why financial markets worldwide have been experiencing notable changes thus far in 2022.

“Among the pronounced developments is a strong US Dollar which is causing currencies like the Philippine Peso to depreciate. The BSP is taking steps to manage any disruption in our financial market. We look forward to servicing all legitimate dollar transactions,” it said.

“The USD spot market remains open and active while forwards and repos are available facilities. All of these can move the economy forward by supporting the financial leg underpinning economic activity and allowing for an orderly settlement of USD obligations. This puts the Filipino in a better position,” BSP added.

Economists’ reactions were mixed.

“BSP recognizes the importance of legitimate transactions for commerce as this will spur economic growth. What they are hoping to minimize and mitigate are speculative moves which tend to drive undue pressure and panic on the spot market,” said Nicholas Mapa, ING Bank senior economist.

An economist  said BSP is “possibly just making sure depreciation is in check and that there are no speculative activities.”

Since the start of 2022, the peso has depreciated by a total P7.65 or 15 percent compared to end-2021’s close of 50.99.

Michael Ricafort, RCBC chief economist, said the depreciation “could still lead to higher prices of imports and overall inflation, thereby would increase possibility of further local policy rate hikes even a surprise local policy rate hike to help stabilize the peso as well as overall inflation.”

“More intervention in the local foreign exchange market; measures to further siphon off more pesos from the financial system to reduce the pesos used to purchase US dollar; greater monitoring of foreign exchange transactions; among other measures to support the peso, could be used in the policy toolkit, all of which could help stabilize the peso exchange rate, as well as overall inflation,” Ricafort said.

Domini Velasquez, China Bank chief economist, said the slight appreciation of the peso “is likely in anticipation of the new 3-year bond.”

“However, this gain is likely wobbly given expectation of higher inflation in September and also continued widening of the trade deficit, both data for the Philippines will be released this week. In case we see better-than-expected figures, the peso will likely keep at the current level and not push to 60 levels in the coming days,” Velasquez said.

Ricafort said yesterday’s trading “nearly erased Monday’s rise of P0.375 centavos.”

“(Peso gained) after the recent tighter reportorial requirements on forex transactions and the slower-than-expected ISM Manufacturing data to the lowest in more than 2 years led to the healthy downward correction in US Treasury yields and in the US dollar against major global currencies to new 1-week lows,” he said.

For today, Ricafort said the peso exchange rate could range between 58.80 and 59 levels.