THE Bangko Sentral ng Pilipinas (BSP) is expected to fall short of achieving its inflation target of 2.0 to 4.0 percent this year due to significant upward pressure on inflation.

In its latest commentary, Metrobank Research retained its inflation forecast at 4.3 percent for this year, despite the consensus expectation of a sustained downward trend due to the current data.

"There continues to be strong upward inflation pressure for the year due to the impending effects of El Niño on food items, emerging geopolitical risks, and rising rice prices," it said.

Rice inflation surged to a 14-year high of 22.6 percent from December's 19.6 percent, which National Statistician Claire Dennis Mapa said was due to currently high global market prices.

Philippine Statistics Authority Undersecretary Dennis Mapa. PHOTO BY MIKE DE JUAN

The base effects that allowed for lower overall inflation had the opposite effect for rice, with Mapa noting that price growth for the staple was much lower a year ago.

Rice inflation is expected to continue accelerating as dry spells brought by El Niño affect farm output.

Inflation has comfortably settled within the target in January at 2.8 percent, having slowed from 3.9 percent in December to near the bottom end of the BSP's target.

The latest figures, the lowest since October 2020's 2.3 percent, have sparked optimism that the central bank might reduce interest rates.

Currently, rates are at a 16-year high due to increased inflation, prompting a two-year-long tightening cycle.

However, as the economy has expanded better than expected at 5.6 percent last year, analysts believed that this might give the central bank enough room for further tightening.

The BSP acknowledged the anticipated slowdown in January but cautioned that inflation could pick up again in the second quarter. It emphasized that policy settings will stay stringent until price growth firmly aligns with the target.

Metrobank echoed this, saying that the BSP is further expected to stay "relatively more hawkish, likely to lag the Fed's (US Federal Reserve) first cut by up to a full quarter, as domestic price pressures remain stickier vs in the US."

"The recent inflation print provides the Bangko Sentral ng Pilipinas with an impetus to hold its policy rates steady at its first Monetary Board meeting on February 15," it said.

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