Inflation is expected to pick up in February, which may lead to a steeper bond yield curve in the coming months.
Bangko Sentral ng Pilipinas (BSP) recently cut policy rates again. While the impact of lower interest rates takes time to show up in consumer prices, low base effects could start to push inflation higher.
Metrobank forecasts headline inflation to settle at 2.4% in February, still within the central bank’s 3±1% target range.
Rice prices remain a key factor. Rice deflation slowed year on year to a single digit in January. Farmgate prices increased month on month after the Department of Agriculture imposed a four-month import ban to protect farmers from falling prices.
Although the ban has been lifted, delays in the arrival of January imports helped keep rice prices elevated through early February. Even so, rice prices are still lower compared with a year ago, which continues to temper overall inflation.
Onions are also expected to pull inflation down as prices decline ahead of the March harvest peak. Farmer groups have said imports are weighing on local prices, though the agriculture department maintains that import volumes are manageable.
In contrast, vegetables, fruits, and seafood may push inflation higher in February. Analysts attribute this to base effects, as price increases for these items started to slow during the same period last year.
Pork prices, however, may have declined year on year. Preliminary data from the Philippine Statistics Authority (PSA) point to lower prices, as fewer African Swine Fever cases this year allowed hog production to recover.
Electricity rates are also expected to add pressure to February inflation. Most areas reported higher power rates year on year, with more noticeable increases in areas served by Davao Light and Power Company and Visayan Electric Company.
Fuel prices increased month on month, but gasoline and diesel costs were still lower compared with last year, showing global oil price movements.
Rental costs may further lift inflation. Housing rents were among the main contributors in January, as many annual contracts are renewed and repriced at the start of the year. A faster year-on-year increase in rents may be seen in February and March as more contracts are renewed.
Metrobank said food, energy, and rental costs will continue to drive inflation, with rice and onion prices offering only partial relief.
The expected uptick in inflation could steepen the bond yield curve. Faster price growth may also limit how much further the central bank can cut interest rates, which could support the peso.