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Philippines: BSP warns of elevated inflation
The Bangko Sentral ng Pilipinas (BSP) warned on Thursday that consumer prices in the country could remain high in the short term due to supply-side concerns.
“Inflation could remain elevated in the near term before decelerating to within the target range of 2.0 to 4.0 percent by the end of the year,” BSP Governor Benjamin Diokno noted in a statement.
He made the statement after the Philippine Statistics Authority reported that the inflation rate fell to 4.8 percent in September, settling at the lower end of its 4.8- to 5.6-percent forecast for the month.
The current decreased inflation, according to Diokno, is mostly due to a lower yearly rate of increase in the transport index. However, supply-side variables, such as weather interruptions, global oil prospects and the prolonged impact of African swine fever (ASF), are projected to fuel recent inflation increases.
“These supply-side shocks are best addressed by timely nonmonetary policy interventions that could ease domestic supply constraints. The return of inflation to the target range is highly contingent on the successful implementation of these supply measures,” he stressed.
Inflation risks, the central bank chief highlighted, remain skewed to the upside for the remainder of 2021, but are largely balanced for 2022 and 2023.
The BSP has revised its inflation estimate for this year from 4.1 percent to 4.4 percent. Outlooks for 2022 and 2023 have been raised from 3.1 to 3.3 and 3.2 percent, respectively.
“Upside risks may come from pressures on world commodity prices, effects of weather disturbances and prolonged recovery from the ASF outbreak. On the other hand, downside risks are seen from the spread of more contagious Covid-19 variants and weaker-than-expected global growth prospects,” Diokno pointed out.
In the future, he said the Bangko Sentral is prepared to retain its accommodative monetary policy stance for as long as it is required to support the economy’s sustained recovery to the extent that the inflation forecast permits.
To help the Philippine economy, the central bank’s Monetary Board opted to retain key interest rates at record lows at its sixth rate-setting meeting for 2021. Overnight borrowing, lending and deposit rates all stayed unchanged at 2.00 percent, 1.50 percent and 2.50 percent, respectively.
For his part, ING Bank Manila senior economist Nicholas Antonio Mapa said the September inflation rate demonstrates the cost-push nature of the recent inflation surge with prices rising swiftly when supply interruptions occur and fading just as quickly once bottlenecks are removed.
“Demand side pressures would have been more pervasive and persistent, especially as the economy opened up further in September. Thus, it’s quite clear that the cost push pressures remain the dominant driver of the current inflation spike,” he explained.
The latest inflation reading, Mapa added, offers the BSP a bit more room to retain its accommodative approach.
“Pressure has been building on the BSP to hike prematurely but the surprise inflation print helps the central bank justify its current stance. BSP has indicated its preference to give the economy a little more breathing room to aid in the recovery until clear signs of a recovery are evident,” he said.
Source: https://www.manilatimes.net/2021/10/06/business/top-business/bsp-warns-of-elevated-inflation/1817276