Philippine inflation beats expectations, lifts chance of bigger rate hike
PHILIPPINE annual inflation blew past expectations in January to reach a fresh 14-year high on surging food prices, raising the chance of the central bank delivering a bigger interest rate hike to tame prices when it meets this month.
The consumer price index (CPI) rose 8.7 per cent in January, the statistics agency said on Tuesday, well above the 7.7 per cent forecast in a Reuters poll and topping the 8.1 per cent rate in December, when the central bank had expected prices to peak.
Core inflation, which strips out volatile food and fuel items, also increased to a more than two-decade high of 7.4 per cent, from December’s 6.9 per cent, suggesting price pressures remain broad.
The Philippine central bank, which had forecast January CPI to come in between 7.5 per cent to 8.3 per cent, said on Saturday it will focus on inflation rather than the Federal Reserve’s most recent 25-basis point hike when it meets on Feb 16 to review interest rates.
Given the faster-than-expected inflation in January, Bangko Sentral ng Pilipinas (BSP) looks certain to hike interest rates by at least 25 basis points and with a bigger 50 bps likely to be on the table, ING economist Nicholas Mapa said in a Tweet.
The Philippines’ broader stock index dropped 0.4 per cent in early trade on expectations of a larger rate hike, while the peso had slipped 0.5 per cent at 54.73 per dollar as of 0211 GMT.
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The main factor behind January’s red-hot inflation was the 11.2 per cent annual rise in food inflation, the quickest pace since 2009, and compared to the previous month’s 10.6 per cent, and the 1.6 per cent rate in the same month last year.
BSP Governor Felipe Medalla has previously signalled further rate hikes at the central bank’s first two policy meetings this year to bring inflation back within a target range of 2 per cent to 4 per cent.
Elevated inflation, plus the need to maintain interest rate differentials between the US and the Philippines, have forced the central bank to embark on aggressive tightening, with the benchmark rate rising by a total of 350 bps last year.
Speaking after the data, Economic Planning Secretary Arsenio Balisacan and Finance Secretary Benjamin Diokno said they expect inflation to cool this year as the central bank’s series of rate hikes take root and the government intensifies measures to increase food production.
President Ferdinand Marcos Jr “remains on top of the situation as the administration continues to adopt a whole-of-government approach to tame inflation, especially on key food items,” Diokno told reporters. The president also holds the post of agriculture secretary. REUTERS
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