Philippine CPI Breaks Central Bank’s Forecast in Test to Policy

(Bloomberg) -- Inflation in the Philippines picked up more than expected in January, signaling that space for easy monetary policy might be narrowing amid a shaky economic recovery. Stocks and the peso fell.

Consumer prices rose 4.2% last month from a year earlier, the statistics agency reported Friday, the fastest since January 2019. That’s above the central bank’s forecast of 3.3%-4.1%, and higher than all 19 analyst estimates in a Bloomberg survey, which had a median of 3.5%.

The peso dropped to the lowest in more than a week, while the Philippine Stock Exchange index slid 0.6%.

Rising costs of food and drinks, particularly meat and vegetables, were the main drivers of inflation, Claire Dennis Mapa, national statistician, said at a briefing.

Steady Rate

As price pressures build, some analysts expect the central bank to keep its benchmark interest rate steady at 2% for the whole year.

“Monetary policy is unlikely to tighten in this part of the economic cycle” even as financial conditions “must remain supportive” for domestic demand, said Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken AB in Singapore.

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Inflation will likely remain elevated in the coming months, with base effects from last year’s muted price increases and persistent cost pressures pushing the headline number close to or above the 4% level, according to Nicholas Mapa, an economist at ING Groep NV in Manila.

Bangko Sentral ng Pilipinas has said inflation is likely to remain in the upper half of its 2%-4% target in the first six months of the year, before easing to below 3%. In January, Governor Benjamin Diokno said there will be a “long pause” on the interest-rate front, with the current rate in place for another two quarters or more.

Policy makers next meet on rates Feb. 11.

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