August inflation remains within target—BSP

MANILA, Philippines—The increase in consumer prices is expected to remain within the target ceiling in August as the appreciation of the peso is seen to have helped temper the impact of higher electricity rates, among other pressures, on overall inflation.

This is according to the Bangko Sentral ng Pilipinas, which said on Wednesday that inflation for August could have settled anywhere between 3.9 and 4.8 percent.

Should this projection materialize, the average inflation for the first eight months of the year would range between 4.3 and 4.4 percent, something that is manageable according to the central bank’s standards.

The BSP has set the inflation ceiling for this and next year at 3 to 5 percent.

BSP Governor Amando Tetangco Jr. said upward pressures on prices in August included the hike in the electricity charged by the Manila Electric Co.  and the moderate increase in the costs of rice and vegetables.

However, he said, the strengthening of the peso against the US dollar helped temper the growth in the prices of imported goods, thus providing an offsetting effect.

Despite the tolerable rise in consumer prices, the BSP said it will continue to monitor developments offshore that could affect price movements domestically, so that it can implement appropriate policies for tempering inflation when needed.

“BSP will remain watchful of global developments, particularly unrest in the Middle East, and changes in growth prospects in advanced economies including the US, as these impact on global aggregate demand and international prices of oil,” Tetangco said in a text message to reporters.

The lingering unrest in the Middle East, a major global oil producer, is monitored worldwide because of its impact on the movement of global oil prices.

Any improvements in the growth performance of the United States and Europe could increase global demand for consumer goods and thus raise prices.

Tetangco also said the investment decisions of portfolio fund owners are also being monitored given the influence of foreign capital inflows on domestic prices.

“We will also be monitoring investor appetite to see how these developments would translate into the direction and magnitude of capital flows,” Tetangco said.

There has been a surge in portfolio investments in emerging markets, including the Philippines, given the much faster growth rates experienced in these places compared with industrialized economies.

The capital inflows are seen beefing up liquidity in the emerging markets, and are thus providing inflation pressures.

The BSP said that so far, the inflows, while they have grown substantially, have not yet reached levels that could accelerate inflation beyond target levels. Nonetheless, Tetangco said, the central bank is prepared to implement anti-inflation measures once these inflows are seen to become unmanageable.