MANILA - (UPDATE) The Bangko Sentral ng Pilipinas is ready to take "timely action" after inflation in January hit the top end of its forecast, Governor Nestor Espenilla said Tuesday.
Consumer prices rose 4 percent last month, the highest since October 2014 and exceeding analysts' forecast of 3.5 percent. Higher taxes on fuel, sugar-sweetened drinks and cars under the first tranche of tax reforms took effect in January.
The pick-up in inflation was due to first-round effects from tax reform and higher food and petroleum prices, Espenilla said.
"We think these are temporary drivers of inflation and would eventually stabilize," Espenilla said in a statement.
"Nevertheless, BSP will be closely monitoring the situation and stand ready to take timely action based on our evaluation of all relevant data," he said.
Budget Sec. Benjamin Diokno said January inflation was "on the high side" but still within target.
"No reason to hit the panic button. One month's performance does not make a year," Diokno said in a statement.
Socioeconomic Planning Sec. Ernesto Pernia said the effect of tax reform in consumer prices would be "minimal and temporary." He said unconditional cash incentives were available for the poor and government was working to bring down rice prices.
The BSP's Monetary Board will meet for the first time this year on Thursday. Analysts expect the Philippines to raise rates by as many as two times this year.
Nomura said it expected inflation to advance to 4.3 percent this year as the impact of tax reform "has yet to fully play out" and there could be an increase in power rates.
"We continue to believe that the policy statement will shift to a more decisively hawkish tone, highlighting rising inflation risks that could threaten its 2 to 4 percent target, thus setting the stage for a rate hike in March," Nomura said.