Consumer price increases likely reached their peak at close to 5 percent in July and August, and conditions for the rest of the year should stabilize, a senior monetary official Friday said.
Liquidity conditions are also expected to continue to improve in the remaining months of 2014, said Diwa C. Guinigundo, deputy governor of the Bangko Sentral ng Pilipinas (BSP).
The projection comes less than a week before the BSP holds its rate-setting meeting on Thursday. In the past five meetings, the BSP’s policy-making body, the Monetary Board, tightened its settings by cutting liquidity and lending growth, as well as by hiking interest rates.
“It looks like inflation has peaked … compared to the highs [of the previous months],” Guinigundo told reporters. “We should be able to see better inflation [numbers] in the last three months of the year.”
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The monetary officials’ main goal is to keep prices stable to protect consumers’ purchasing power. In July and August, inflation reached 4.9 percent—the highest level for the year, and near the top end of the central bank’s target range of 3 to 5 percent.
This was mainly due to supply-side issues brought on by the damage Supertyphoon “Yolanda” wreaked on farmlands late last year.
Supply-chain bottlenecks resulting from the recently lifted truck ban in Manila also contributed to higher production costs, which were passed on to consumers.
In September, inflation slowed to 4.4 percent, matching the average for the nine months since the start of the year. For 2014, the BSP expects inflation to average at 4.5 percent.
Speaking at the sidelines of a forum for corporate finance executives, Guinigundo noted that upside risks to inflation still remained, chief of them, pending petitions for power rate increases.
Fortunately, global economic conditions remain relatively week, which means international prices for commodities such as food and fuel are likely to stay subdued.
Since April, the BSP has been tightening its monetary policy, which influences the amount and cost of money banks have available for lending to households and consumers.
Banks were told to set aside more of their clients’ deposits as reserves. Yields for special deposit accounts and the BSP’s own deposit rates were also hiked to encourage banks to park more of their idle cash with the central bank.
As for the upcoming meeting, the BSP’s best policy response would be to stay neutral for now, BDO chief market strategist Jonathan Ravelas said.
“I think they should preserve their ammunition,” he said in an interview, adding that an adjustment would be warranted only if the peso were to come under too much pressure due to the rising dollar.