Inflation could hit target in December

MONTHLY inflation could finally return to target this month but monetary authorities will continue to remain hawkish given continued upside risks, analysts said.

Consumer price growth slowed for a second straight month to a 20-month low of 4.1 percent in November, just short of hitting the Bangko Sentral ng Pilipinas' (BSP) 2.0- to 4.0-percent target.

Year to date, inflation remained above target at 6.2 percent.

China Banking Corp. chief economist Domini Velasquez said the significant slowdown over the past two months was «positive news.»

«There is a possibility that prices may even stabilize to around 4.0 percent in December,» she added.

Despite the downtrend, however, Velasquez said the BSP would continue to keep policy settings tight until the second half of next year.

«Inflationary risks remain tilted to the upside, notably due to food supply, oil prices, electricity rates and pending minimum wage increases from several regions,» she noted.

Pantheon Macroeconomics economist Miguel Chanco, meanwhile, said the latest inflation print had strengthened the outlook that inflation would be much more under control.

«While the latest headline [result] was softer than we expected, it supports our long-held view that a return to the BSP's 2-to-4 percent target range is doable before the end of this year,» he added.

«Indeed, we're more than happy with our below-consensus forecast for average annual inflation to drop to 2.8 percent next year, from 6.0 percent this year, providing the BSP with ample room to normalize policy.»

Chanco said the current consensus for 2024 inflation was 3.7 percent and that the Monetary Board was likely to cut key interest rates by 100 basis points over the next 12 months.

Bank of the Philippine Islands senior economist Emilio Neri, on the other hand, said it might be premature to expect rate cuts in the next few months despite the improving inflation outlook.

«The BSP might need to keep interest rates elevated for most of next year, especially given the possibility of an inflation rebound in the 2nd quarter of 2024,» Neri said.

«Moreover, the rate cuts will also depend on what the [United States] Federal Reserve (Fed) will do. It might be difficult