Inflation starting to ease, says BSP
Even as it raised interest rates for the second time in as many months, the central bank believes domestic inflation is nearing its peak and it is confident enough to lower its projections for this year and the next.
According to BSP Deputy Governor Diwa Guinigundo, monetary planners now expect the pace of price increases for the rest of 2018 to ease. As such, the central bank’s forecasts were lowered slightly from 4.6 percent down to 4.5 percent for this year.
A downward revision of the same magnitude was made for 2019’s inflation forecast, from 3.4 percent to 3.3 percent.
Guinigundo—who has consistently stressed in recent months that the present price spikes were “transitory” in nature—said that despite the downward revision, there were four factors that made the policymaking Monetary Board believe that inflation would “remain elevated” this year.
For one, Philippine economic activity remains robust in the second quarter, thus feeding inflation. At the same time, he noted that oil prices remained high in the international market and thus, locally, too.
The central bank deputy chief also noted that regional wage boards around the country were likely to approve a round of mandated salary hikes that would be implemented by October to offset the erosion of employees’ buying power brought about by inflation which, at 4.6 percent in May, stood at a high of at least five years.
Guinigundo pointed out that the implementation of additional excise tax hikes next month would also keep prices elevated for the rest of the year.
Next year, however, is a different story as central bank planners expect the inflation rate to normalize.
Guinigundo said most market watchers here and abroad were expecting international prices of crude oil to start declining next year, as evidenced by falling prices of oil supply forward contracts.
At the same time, the growth of the country’s imports — which feed into inflation through the weaker exchange rate that the trade imbalance causes — is expected to decelerate next year.
Guinigundo said the inflation rate would also benefit from the so-called “base effect” of being compared against this year’s high levels.
In contrast to Guinigundo’s optimism, however, BSP Governor Nestor Espenilla Jr. adopted a more hawkish stance saying regulators would not hesitate to tighten monetary policy further if its latest move proved to be insufficient in reining in upward price pressures.
“The BSP is prepared to take further policy action as needed to achieve its price and financial stability objectives,” the central bank chief said, pointing out that regulators would also continue to be vigilant against peso volatility that could aggravate inflation.
