Inflation Accelerates to 8 percent in November

Inflation accelerated to a 14-year high of 8 percent in November, higher than the 7.7 percent recorded in October. November’s inflation reading fell within the Banko Sentral ng Pilipinas’ (BSP) projection of 7.4 percent to 8.2 percent for the month, and slightly above analyst expectations. A previously conducted BusinessWorld poll of 15 economists yielded a median estimate of 7.8 percent inflation for the month. This faster-than-anticipated increase was due mainly to increases in food prices, as the country continues to feel the effects of recent typhoons as well as a challenged international market.

The sustained acceleration of price levels has lent strength to the argument that the BSP should continue further with its monetary tightening policy. Last month, the BSP delivered its second consecutive 75 basis-point (0.75 percent) interest rate increase. Since then, BSP Governor Felipe Medalla suggested that another rate increase could be implemented at the Monetary Board’s last meeting of the year on December 15. At the same time, Mr. Medalla has indicated that subsequent rate increases would likely be smaller at 50 or even 25 basis points, noting his belief that the U.S. Federal Reserve is unlikely to implement further “jumbo” 75 basis-point hikes, after having done so four successive times this year.

Last week, the International Monetary Fund (IMF) applauded the BSP for being “prompt in tightening,” but also noted that that “further monetary policy tightening might be needed through 2023…if inflation[ary] pressures remain high.” The IMF has forecast that average annual inflation for the Philippines in 2022 will be 5.3 percent and will ease to 4.3 percent in 2023 and 3.1 percent in 2024. With November’s 8 percent inflation reading, average inflation for the first eleven months of this year stood at 5.61 percent. Despite the dour inflation outlook, the IMF was optimistic regarding the Philippine economy’s relative growth trajectory: “more monetary tightening will weigh on growth on 2023, but we think that the growth recovery will continue.” The IMF is predicting GDP growth of 6.5 percent for 2022, before slowing to 5 percent in 2023