Bangko Sentral ng Pilipinas Governor Felipe Medalla on Thursday said the worst could be over for inflation as signs of depreciation are observed despite the consumer price index remaining high in December.
Inflation in December reached 8.1 percent due to higher prices for vegetables such as onions. But other price pressures earlier in 2022 have started to fade including supply shocks and the high prices of sugar and oil, Medalla said.
“I think the worst is over… We thought that the last bad month would be October or November but that didn’t happen. We had another shock. But finally the December print, although the year-on-year is quite high, the month-on-month is back to the normal 0.3 percent,” he said.
In a span of 6 months, the BSP raised the key interest rate to 5.5 percent from 2.25 percent to tame inflation and to help stabilize the peso against the US dollar.
The dollar is now “not as strong as it used to” and US inflation, which is pushing the Federal Reserve to raise the interest rate, is “more under control,” Medalla said.
It is hard not to respond when the US raises its interest rate, Medalla said. The interest rate differential between the US and the Philippines must be kept at the current level or else investors would prefer US bond instead of peso-denominated bonds, he added.
“All of these together, we are hoping that by the third quarter of this year, inflation will be below 4 percent,” Medalla said.
The government inflation target is between 2 and 4 percent.
In terms of the economy, Medalla said the base line forecast is a growth of over 6 percent still buoyed by the pent-up demand.
“Major expenditures that were postponed for more than 2 and a half years that’s still not back yet, this year, we still have some of that,” he said.
