Inflation seen accelerating due to weak peso

Prices of basic commodities are expected to increase at a faster pace over the next few months due to the continuing depreciation of the peso against the US dollar.

This was according to economic Planning Secretary Arsenio Balisacan, who said the peso’s weakening would push up prices of imported goods and, therefore, overall domestic prices.

He added that inflation might also accelerate due to increased consumption of households that depend on dollar remittances from family members abroad.

A weaker peso increases the local-currency value of dollars received by a household, thereby allowing it to buy more goods and services.

An increase in demand for goods and services tends to push inflation, Balisacan explained.

“Of course the depreciation of the peso will have an effect [on consumer prices]. This has an impact on imports and purchasing power of households receiving remittances,” Balisacan said.

The country’s chief economist stressed, however, that any uptick in inflation should be modest.

He said inflation would likely stay within the official target range of 3 to 5 percent for this year and next year.

Balisacan said the Bangko Sentral ng Pilipinas was expected to stay on top of the situation and help keep inflation within manageable levels.

Earlier, the BSP said that based on its estimates, inflation would likely stay below 4 percent this year and next year.

It said it was prepared to adjust its policies if warranted to help keep inflation within the target band.

It was reported earlier that inflation settled at a modest rate of 2.6 percent in May and averaged at 3 percent in the first five months of the year.

The BSP has expressed confidence that the Philippines can stay on the so-called “sweet spot” where inflation is benign and economic growth robust.

BSP Governor Amando Tetangco Jr. had said the country’s production capacity has already increased, with growth of the economy being boosted not only by consumption but also by investments.

As such, he said, inflation can stay modest even if the robust economic growth rate would be sustained.

Last year, the Philippine economy grew by 6.8 percent, surpassing the official target of 5 to 6 percent.

In the first quarter of this year, it grew by 7.8 percent, the fastest growth rate in Asia for the period, even surpassing China’s 7.7 percent.