BSP: Inflation could breach target this year

INFLATION could exceed the target range later this year due to base effects, the Bangko Sentral ng Pilipinas (BSP) said in its latest Monetary Policy Report.

While consumer price growth will likely settle within the 2.0- to 4.0-percent goal up to 2026, it "could exceed the target range in the latter part of 2025, primarily due to base effects from easing commodity price pressures in the corresponding period of 2024," the central bank said in the report's February edition.

Risks to the outlook remain broadly balanced, however, with the latest baseline and risk-adjusted projections said to be "not materially different" from assessments made in December.

The BSP's policymaking Monetary Board, which unexpectedly paused from cutting interest rates further last month, also raised the baseline and risk-adjusted inflation forecasts for this year to 3.5 percent from 3.3 percent and 3.4 percent, respectively.

Those for 2026, meanwhile, were kept at 3.5 percent and 3.7 percent.

The impact of tariff cuts on domestic rice prices, which the BSP said had a "medium" probability, is the main downside risk to consumer price growth. Higher pork prices, electricity rates and transport charges, meanwhile, pose downside risks.

The risk from an increase in pork prices was said to be "high" given recent price trends and issues hampering the distribution of vaccines that could mitigate the supply impact from an Asian swine fever outbreak.

As for power rates, a 2023 Supreme Court ruling that nullified caps on Wholesale Electricity Spot Market prices for the last two months of 2013 could limit the potential impact on inflation, so the BSP said the risk from this was "low."

A low probability was also assigned to higher transport charges.

Inflation expectations also remain well-anchored, the BSP said, with the mean forecasts of 3.2 percent, 3.3 percent and 3.4 percent for 2025, 2026 and 2027, respectively, unchanged in a February poll of external forecasters.

Most analysts expect the BSP to continue cutting interest rates, with projections ranging from 50 to 100 basis points. Views for 2026 were said to be "more diverse," with outlooks ranging from no change to cuts of up to 75 basis points.

A majority of the respondents, the central bank said, expect continued easing in 2027.