Inflation may slip below BSP’s 2013 target range

Consumer prices may settle below the central bank’s yearly target range for the first time since 2008 due to the stable food and fuel prices, and unexpected delays in the increases in wages and train fares in Metro Manila.

Under its charter, the Bangko Sentral ng Pilipinas (BSP), whose primary mandate is to maintain  stable consumer prices, would have to explain the situation to Malacañang if the inflation target is missed.

“It’s possible. It would be better if inflation accelerates more so it averages above 3 percent for the year,” BSP Deputy Governor Diwa C. Guinigundo told reporters.

Inflation averaged at 2.8 percent for January to September of this year, which is slightly below the BSP’s 2013 target of 3 to 5 percent. BSP maintained the same target for 2014, while for 2015, the target is lower at 2 to 4 percent.

BSP’s latest inflation forecast, which was issued last September, stands at 3 percent.

While stable prices are good for consumers, the risk, Guinigundo said, was that manufacturers and producers would be discouraged from expanding their businesses due to the expectation that profit margins would be lower.

“I hope it doesn’t become a disincentive for people who produce because price movements will be too slow,” Guinigundo said. “Of course they want prices to go higher,” he said.

BSP last missed its inflation target in 2008, when the rate averaged at 9.3 percent. The target for that year was 3 to 5 percent.

Guinigundo said inflation would have averaged higher if the P10 increase in Metro Manila wages was not delayed until October of this year. He said BSP also assumed that the actual wage increase would be higher than P10.

He said fare increases for the Metro Rail Transit (MRT) and the Light Rail Transit (LRT) lines 1 and 2 have also been delayed. The increase in train fares were first approved by the government in 2011, but have not yet been implemented until now.

Department of Transportation and Communications Secretary Joseph Abaya said the fare hike may still be implemented this year. It costs the government as much as P60 to ferry a single passenger from end to end at MRT—well above the P15 maximum ticket price. The difference is shouldered by the government as a subsidy, which amounts to billions of pesos every year.

Guinigundo likewise said global food and fuel prices have remained stable this year due to weak economic conditions in developed markets, weakening demand for commodities.