Elusive inflation*

PHILIPPINES - In Brief 05 Mar 2025 by Diwa Guinigundo

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GlobalSource Partners Philippines has been monitoring and analyzing domestic inflation in the Philippines, its dynamics and directions. Its focus has been to assess the appropriateness of monetary policy settings on the evolving inflation trend, rather on any point observation or estimate of next month’s price movement. For instance, we issued word on the BSP’s forward guidance, the alternative monetary policy measure of reducing the required reserve ratio (RRR), the momentum of tightening in the heady days of 2022 and 2023, and easing starting the latter part of 2024. For 2025, January inflation remained muted at 2.9% from December 2024’s 2.9%. Just one of the 16 analysts polled by the BusinessWorld succeeded in estimating it exactly at that point, four were higher while the rest were more optimistic inflation would turn out more subdued. Well, BSP forecast was much too safe at a wide 2.5-3.3%. It was actually right for the BSP to avoid releasing point estimate, inflation is much too elusive even for more sophisticated, stability-tested forecasts. More important, there is reputational risk to think about, something the BSP cannot afford to lose because of some computational issues. True to form, the February 2025 inflation was as slippery. BusinessWorld’s 18 forecasters all failed to hit the 2.1% actual inflation for all hearts’ month. Except one, they all captured the downward direction in domestic inflation, ranging from a high of 2.8% to a low of 2.4%, still off the actual inflation. The analysts must have underestimated the downtrend in prices of food and non-alcoholic beverages, including those of housing, water, electricity, gas and other fuels. The BSP's range ...