Headline inflation eased further to 2.8% in January, beating consensus estimates of a 3.1% inflation print. Core inflation likewise slowed to 3.8% from 4.4% the previous month. However, the month-on-month increase of 56 bps in the actual CPI figures indicates that at least part of this slowdown in inflation could be attributed to high base effects.<\/p>\n\n\n\n
The increase in prices of food and non-alcoholic beverages slowed to 3.3% year-on-year (YoY) from 5.4% in December, with a 20.8% YoY decline in vegetables somewhat offsetting the 22.6% YoY jump in rice. National Statistician Dennis Mapa attributed the jump in rice prices to tight global supply, but NEDA Secretary Arsenio Balisacan said that the government is closely monitoring rice prices and would make policy recommendations to the President, which may include allowing increased imports to stabilize supply.<\/p>\n\n\n\n
Our View: <\/strong>Despite inflation hitting its lowest level since October 2020, the BSP will likely maintain its hawkish stance when the Monetary Board meets to review interest rates on February 15. BSP Governor Remolona has previously said that \u201cthe balance of risks to the inflation outlook still leans significantly towards the upside,\u201d citing the potential for tight food supply due to El Ni\u00f1o, and expected increases in the cost of transport, electricity, and oil. <\/p>\n\n\n\n As such, while it is highly unlikely that the BSP will hike rates during the February meeting, it is equally unlikely that they will choose to cut rates. The most likely scenario is that the Board will wait until after the summer months to fully assess the impact of El Ni\u00f1o on food supply before loosening its monetary policy.<\/p>\n\n\n\n