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Philippine inflation hits fresh 14-year high on surging food prices

REUTERS/Romeo Ranoco
A worker stands on top of piles of red onion sacks as he prepares to deliver the produce to a warehouse in metro Manila
  • Central bank says it will focus on inflation rather than the Fed rate hike
  • Faster-than-expected inflation raises odds of bigger rate hike
  • Economic planning chief says inflation to moderate this year

Philippine annual inflation blew past expectations in January to reach a fresh 14-year high on surging food prices, raising the chance of the central bank delivering a bigger interest rate hike to tame prices when it meets this month.

The consumer price index (CPI) rose 8.7 percent in January, the statistics agency said on Tuesday, well above the 7.7 percent forecast in a Reuters poll and topping the 8.1 percent rate in December, when the central bank had expected prices to peak.

Core inflation, which strips out volatile food and fuel items, also increased to a more than two-decade high of 7.4 percent, from December’s 6.9 percent, suggesting price pressures remain broad.

The Philippine central bank, which had forecast January CPI to come in between 7.5-8.3 percent, said on Saturday it will focus on inflation rather than the Federal Reserve’s most recent 25-basis point (bps) hike when it meets on February 16 to review interest rates.

Given the faster-than-expected inflation in January, Bangko Sentral ng Pilipinas (BSP) looks certain to hike interest rates by at least 25 bps and with a bigger 50 bps likely to be on the table, ING economist Nicholas Mapa said in a tweet.

The Philippines’ broader stock index dropped 0.4 percent in early trade on expectations of a larger rate hike, while the peso had slipped 0.5 percent at 54.73 per dollar as of 0211 GMT.

The main factor behind January’s red-hot inflation was the 11.2 percent annual rise in food inflation, the quickest pace since 2009, and compared to the previous month’s 10.6 percent, and the 1.6 percent rate in the same month last year.

BSP governor Felipe Medalla has previously signalled further rate hikes at the central bank’s first two policy meetings this year to bring inflation back within a target range of two to four percent.

Elevated inflation, plus the need to maintain interest rate differentials between the US and the Philippines, have forced the central bank to embark on aggressive tightening, with the benchmark rate rising by a total of 350 bps last year.

Speaking after the data, economic planning secretary Arsenio Balisacan and finance secretary Benjamin Diokno said they expect inflation to cool this year as the central bank’s series of rate hikes take root and the government intensifies measures to increase food production.

President Ferdinand Marcos Jr “remains on top of the situation as the administration continues to adopt a whole-of-government approach to tame inflation, especially on key food items”, Diokno told reporters. The president also holds the post of agriculture secretary.