Consumer prices in the Philippines rose by 3.7% in March 2024, faster than the 3.4%
increase recorded in the previous month but slower than the 3.8% increase expected by
the market. Core inflation dipped further from 3.6% to 3.4%.
The following table shows the most recent inflation forecasts of the central bank for the
next two years:
Inflation Forecast December Meeting February Meeting
2024 4.2 3.9
2025 3.4 3.5
ANALYSIS
The recent slowdown in inflation from October to January was largely driven by
favorable base effects, as inflation peaked at 8.7% in January 2023. However, this base
effect has started to fade, pushing inflation higher.
Food inflation continues to be substantial, accounting for 2.1% of the 3.7% headline
inflation. Rice has been the biggest contributor to this with a 24.4% increase in prices,
driven by tight supply stemming from El Nino. As shown in the chart below, the 12-
month rolling average of the country’s rice inventory currently stands at 1.7 million
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ABOUT BPI
The 172-year-old Bank of the Philippine Islands is the first bank in the Philippines and Southeast Asia. We are licensed as a
universal bank by the Bangko Sentral ng Pilipinas to provide a diverse range of financial services: deposit taking and cash
management, payments, lending and leasing, asset management, bancassurance, investment banking, securities brokerage, and
foreign exchange and capital markets. BPI has significant financial strength, with robust Tier 1 capital adequacy ratios and
profitability, underpinned by stringent compliance and risk management regimes. E-mail: Media: nmcrobles@bpi.com.ph Investors:
Investorrelations@bpi.com.ph. Bank of the Philippine Islands l Ayala Triangle Gardens, Paseo de Roxas corner Makati Avenue.
Makati City 1229 PH l +632 8246 6364l www.bpi.com.ph
metric tons, the lowest since 2008. Importation has provided limited relief due to
elevated global rice prices.
Favorable base effects have also started to wear off for vegetables. Prices fell year-on-
year in March, but the decline has been slowing down. The extremely hot weather has
likely affected production, which may lead to higher prices in the coming months.
The contribution of transport to inflation, which has been close to zero since April 2023,
has also expanded slightly due to higher oil prices. Despite the subdued demand from
major economies such as China, which has kept oil prices steady in the past year,
geopolitical tensions and production cuts from OPEC have pushed oil prices higher.
`
ABOUT BPI
The 172-year-old Bank of the Philippine Islands is the first bank in the Philippines and Southeast Asia. We are licensed as a
universal bank by the Bangko Sentral ng Pilipinas to provide a diverse range of financial services: deposit taking and cash
management, payments, lending and leasing, asset management, bancassurance, investment banking, securities brokerage, and
foreign exchange and capital markets. BPI has significant financial strength, with robust Tier 1 capital adequacy ratios and
profitability, underpinned by stringent compliance and risk management regimes. E-mail: Media: nmcrobles@bpi.com.ph Investors:
Investorrelations@bpi.com.ph. Bank of the Philippine Islands l Ayala Triangle Gardens, Paseo de Roxas corner Makati Avenue.
Makati City 1229 PH l +632 8246 6364l www.bpi.com.ph
Looking ahead, inflation may accelerate further beyond the 4% target of the BSP in the
2nd quarter despite the lower than expected March figure, with El Nino as the main
driver. Supply of certain food items will likely remain tight until El Nino subsides.
However, the breach in the inflation target is likely temporary, with inflation likely to ease
in the 2nd half of the year, contingent on the conclusion of El Nino and its impact not
being more severe than expected. We have retained our full year inflation forecast at
3.8%.
The BSP will likely remain prudent by keeping interest rates steady in the first half of the
year. Rate cuts might be considered once inflation stabilizes within the BSP’s target
range in the 3rd or 4th quarter. However, aggressive rate cuts are unlikely given the
prevailing inflationary environment. Global supply constraints and geopolitical tensions
are contributing to a faster rise in prices compared to the past decade, limiting the
BSP’s room for significant rate reductions. Moreover, the economy has been resilient
despite the elevated interest rates, with loan growth showing a recovery in January. We
continue to expect a rate cut of around 75 bps this year.
MARKET IMPLICATIONS
The BSP may keep its rates steady in the first half of the year, taking into account a
possible inflation rebound in the 2nd quarter. Rate cuts are possible in the 2nd half of
the year once inflation is firmly within the target of the central bank. However, the timing
of future rate cuts and their magnitude also depend on what the Federal Reserve will
do. If local inflation conditions are right, the BSP will likely respond immediately with rate
cuts once the Fed begins its easing cycle.
The Peso may appreciate in the second half of 2024, contingent on what the Federal
Reserve will do. It seems the Peso has the tendency to strengthen when the Fed eases
`
ABOUT BPI
The 172-year-old Bank of the Philippine Islands is the first bank in the Philippines and Southeast Asia. We are licensed as a
universal bank by the Bangko Sentral ng Pilipinas to provide a diverse range of financial services: deposit taking and cash
management, payments, lending and leasing, asset management, bancassurance, investment banking, securities brokerage, and
foreign exchange and capital markets. BPI has significant financial strength, with robust Tier 1 capital adequacy ratios and
profitability, underpinned by stringent compliance and risk management regimes. E-mail: Media: nmcrobles@bpi.com.ph Investors:
Investorrelations@bpi.com.ph. Bank of the Philippine Islands l Ayala Triangle Gardens, Paseo de Roxas corner Makati Avenue.
Makati City 1229 PH l +632 8246 6364l www.bpi.com.ph
