Rate of rise in consumer prices seen to remain slow

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The rate of increase in consumer prices in May will likely be restrained, ranging from 2.5 to 3.4 percent, the Bangko Sentral ng Pilipinas said.

Based on the central bank’s estimates, inflation in May will probably be lower than that of the previous month—and even that of the previous year—due to a decline in the prices of utilities, BSP Governor Amando Tetangco Jr. said Thursday.

“Inflation could be lower than that of the previous month if the impact of lower international crude prices—lower transport and utility rates—has offset price increases in some fruits and vegetables,” Tetangco told reporters.

Inflation in April stood at 3 percent. It averaged at 3 percent in the first four months of the year. In May last year, inflation stood at 5 percent.

If inflation were to fall within the central bank’s forecast range for the month, the average rate of increase in consumer prices in the first five months could stand at 2.9 to 3.1 percent—well within the government’s official target of between 3 and 5 percent.

According to Tetangco, an environment of benign inflation makes costs of raw materials and other capital goods affordable and this will help the government in its effort to attract more business.

“Our current forecast runs still show within target average inflation over the policy horizon. Nevertheless, we are mindful of risks to this central forecast, such as external developments,” the BSP chief said.

External developments include the increase in the cost of imported goods as well as movements of global oil prices, which may turn volatile given the political tension now existing in some oil-exporting countries.

“We will make adjustments to the policy stance … when necessary,” Tetangco said.

Since the start of the year, the BSP had twice cut its key policy rates. The rate cuts were meant to spur demand for loans, and thus boost consumption and investments in a bid to accelerate growth of the economy following last year’s slowdown.

The policy rates, which influence commercial interest rates, currently stand at historic lows of 4 and 6 percent for overnight borrowing and lending, respectively.

Low rates, however, have a tendency to boost demand for goods and services. This may accelerate inflation.

The central bank has the flexibility to raise policy rates, or implement other measures to siphon off excess liquidity from the system, Tetangco said.

The BSP will act once indicators show that price pressures are threatening to breach the inflation target.—Michelle V. Remo

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