BPI: Inflation may breach 7 percent in coming months

Headline inflation may surpass 7 percent in the coming months amid a convergence of domestic and global headwinds, Bank of the Philippine Islands lead economist Emilio Neri Jr. said.

In a recent commentary, Neri projected September inflation at 6.9 percent, within the Bangko Sentral ng Pilipinas’ (BSP) forecast range of 6.4 to 7.4 percent, potentially ending four consecutive months of decline.

Neri said the expected September rebound could signal a resurgence in inflation in the coming months, with the next wave likely to be broader and more persistent.

“The September 28 fare hikes will have a fuller impact from October, while wage increases could reinforce second-round price pressures. Unlike fuel prices, fares and wages are less likely to reverse, making inflation harder to unwind,” Neri said.

He also flagged adverse weather disturbances, particularly the expected onset of a severe El Niño event toward the end of the year, as well as the minimum wage hike in the capital region that took effect on 26 September, as upside risks to inflation, which stood at 6.1 percent in August.

“The approved NCR wage hike, once implemented, would add to domestic inflation pressures by raising labor costs, particularly in labor-intensive services. Beyond the direct impact on prices, potential second-round effects could make inflation more persistent as businesses pass higher labor costs through to consumers,” he said in an August commentary.

On Thursday, Neri reiterated his concerns, adding the peso’s recent depreciation, persistent volatility in global oil prices and the pending decision of the Energy Regulatory Commission on Meralco’s rate reset to the list of upside risks.

Neri said he expects September inflation, which would be the highest monthly rate since April’s three-year high of 7.2 percent, to be driven by the same pressures.

“Food drove most of the increase. Habagat-driven monsoon rains and flooding disrupted the supply and transport of perishables, lifting prices of vegetables, fruits, and fish. Rice prices also remained firm, while transport costs added to the pressure as fuel relief proved short-lived,” he said.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael Ricafort also warned that inflation could continue to rise in the coming months.

“There is a risk that inflation could pick up further in the coming months in view of second-round inflation effects, or higher prices of other affected goods and services, or pass-through effects, especially due to higher minimum wages by +P60 or +8.6% for Metro Manila, as well as the net increase in crude oil/fuel/petroleum prices due to the war [in the] Middle East,” Ricafort said.