Economists expect inflation this month to slow further after December inflation fell within the Bangko Sentral ng Pilipinas' target at 3.9 percent from 4.1 percent in November.

The BSP had forecasted last month's inflation to range from 3.6 to 4.4 percent. However, the bank's ideal range is 2 to 4 percent.

Michael Ricafort, chief economist of Rizal Commercial Banking Corporation, said January to February inflation might settle close to or below 3 percent, before rebounding to 3 percent in March.

He said the forecast is backed by possible cheaper oil and food prices.

"There is a possible inflation average of about 3.5 percent for 2024 if global crude oil prices remained relatively lower and rice inflation managed properly amid risk of El Niño," Ricafort said.

No signs

The economist said so far there are no signs that the Israel-Hamas war will intensify which could increase global oil prices.

Ricafort added enough food supplies is expected to drive slower inflation  through the extended implementation of lower import tariffs on rice, corn and pork for the entire year under Executive Order No. 50 by President Ferdinand Marcos Jr.

"El Niño could lead to some uptick in overall inflation but could be mitigated by targeted importation," Ricafort said.

Ruben Carlo Asuncion, chief economist of Union Bank of the Philippines, agreed  inflation in January will likely  settle within 2 to 4 percent if prices of rice fall further.

Small decline

He said the December inflation reflected a small decline month-on-month as the overall prices of goods and services grew by 0.1 percent from 0 percent in November when seasonal factors, such as weather and Christmas spending, were excluded.

"Although, on an annual basis, we have seen declines across the board. However, a notable annual increase was rice. This is something to look out for especially with downside risks from El Niño in the first half of the year," Asuncion said.

The Philippine Statistics Authority reported food inflation slowed to 5.5 percent from 5.8 percent, with rice as the top contributor with 1.7 percentage point. This was followed by fish, dairy and egg products, all with less than 1 percentage point.

Negative base effects

The BSP said inflation within a few months will moderate partly due also to the mathematical principle of  negative base effects.

However, the BSP said its Monetary Board still leans toward elevated interest rates to manage consumer expectations amid inflationary risks from El Niño, transport fares and energy prices.

"Looking ahead, the Monetary Board deems it necessary to keep monetary policy settings sufficiently tight until a sustained downtrend in inflation becomes evident," the central bank said.