Vendors wearing face masks for protection against the coronavirus disease (COVID-19) stand by their fruit stalls at a public market in Quezon City, Metro Manila
Vendors wearing face masks for protection against the coronavirus disease (COVID-19) stand by their fruit stalls at a public market in Quezon City, Metro Manila, Philippines, February 5, 2021. Reuters

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 larger interest rate hike to tame prices when it meets this month.

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

Core inflation, which strips out volatile food and fuel prices, also increased to 7.4%, the highest in more than two decades and up from December's 6.9%, suggesting price pressures remain broad.

The Philippine central bank, which had forecast January CPI to come in between 7.5%-8.3%, said after the data release it remains focused on restoring inflation to the government target of 2%-4%.

"The January 2023 inflation data points to the need for sustained efforts to combat price pressures, particularly non-monetary government measures," the Bangko Sentral ng Pilipinas (BSP) said in a statement on Tuesday.

The BSP, which said on Saturday it will focus on inflation rather than the Federal Reserve's most recent 25-basis point hike at its Feb. 16 rate-setting meeting, reiterated it "stands ready to adjust its monetary policy" to anchor inflation expectations.

Given the faster-than-expected inflation rate in January, the BSP looks certain to hike interest rates by at least 25 basis points and with a bigger 50 bps hike likely to be on the table, ING economist Nicholas Mapa said on Twitter.

The key policy rate is currently at 5.5%, having risen a total 350 basis points in 2022, to tame inflation and maintain interest rate differentials between the United States and the Philippines to support the peso.

The Philippines' broader stock index closed 0.8% lower on expectations of a larger rate hike, while the peso was 1.3% lower to the dollar at 55.16, as of 0831 GMT.

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

President Ferdinand Marcos Jr, who also holds the post of agriculture secretary, said it was "unfortunate" inflation continued to rise, but the pace of price increases should ease with a drop in the cost of fuel and imported agricultural products.

"We have already taken some measures so that the supply will be greater and so that will bring the prices down but that will take a little time," Marcos said, echoing the predictions of his economic ministers.

Speaking after the data, Finance Secretary Benjamin Diokno said he expected inflation to start slowing in the first quarter as the government intensifies measures to boost food production.