Regulators wary of low inflation

Monetary authorities are now carefully watching the movement of consumer prices, wary of recent forecasts suggesting that the country’s economic surge may be losing steam.

Last year, high inflation was the main concern of the Bangko Sentral ng Pilipinas (BSP). But this year, the issue may just be the opposite.

According to BSP Governor Amando M. Tetangco Jr., average inflation for this year is still expected to remain within official targets, due mainly to the abundance of cheap fuel in global markets.

“The BSP is symmetric in its reaction to the possible breaches of the target range,” Tetangco told reporters this week. “We will wait for additional data to see if the lower end of the target range will be breached for a persistent period, just as we would if the potential breach were on the upper range.”

Throughout 2015, inflation is expected to average at 2.3 percent, or near the low end of the central bank’s target of 2 to 4 percent. Last year, average inflation was 4.1 percent, but it peaked 4.9 percent in July and August. This peak was near the top end of the target for that year to 3 to 5 percent.

Low inflation this year is a result of the significant drop in the price of oil in world markets—following a decision by oil exporters to keep production levels up, despite the supply glut.

Protecting consumers’ purchasing power by keeping prices stable is the BSP’s main goal. Price pressures are managed by adjusting interest rates and liquidity levels in the economy, which affects demand for goods.

However, keeping inflation too low may hurt producers of goods—because the profits they earn tend to decline. This may lead to slower economic activity. Paolo G. Montecillo