Rising electricity costs, new taxes to nudge inflation rate higher – BSP

Prices of goods and services in the Philippine economy may rise at a faster pace over the short to medium term amid expectations of higher electricity rates as well as the temporary effects of new government taxes that may come into effect next year, the Bangko Sentral ng Pilipinas said on Friday.

At the same time, monetary authorities said that the rise in global crude oil prices along with the recent depreciation of the peso against the US dollar have also put the country’s inflation path on a higher trajectory over the 2017-2019 horizon, but still on track to hit the midpoint of the government’s 2-4 percent target range.

“The balance of risks surrounding the inflation outlook also remains tilted to the upside,” the BSP said in its latest inflation report released on Friday.

It added, however, that “the potential for slower global economic growth owing to geopolitical tensions and lingering uncertainty over economic policies in advanced economies continues” are set to mute whatever inflationary impact higher power costs and additional taxes may bring.

As such, the central bank said it will “maintain its vigilance” in controlling the amount of liquidity in the domestic financial system through its monetary policy tools including its key overnight borrowing rate and other control levers like banks’ statutory reserve requirements.

“The BSP will continue to monitor domestic and external developments to ensure that the monetary policy stance remains consistent with its price and financial stability objectives,” the central bank said.

The BSP Inflation Report is published as part of the BSP’s efforts to improve the transparency of monetary policy under inflation targeting and to convey to the public the overall thinking and analysis behind the Monetary Board’s decisions on monetary policy.

The following are the highlights of the Q3 2017 BSP Inflation Report:

For the recently concluded third quarter of the year, BSP declared headline inflation to be “steady” as the average rate was at 3.1 percent for the July-September 2017 period — unchanged from the quarter-ago average but higher than the year-ago average of 2 percent.

This brought the year-to-date average to 3.1 percent, within the government’s target range of 3.0 percent, plus or minus 1 percentage point for the year.

“Food inflation eased with slower increases in the prices of rice, meat, and fruits and vegetables,” BSP said. “By contrast, non-food inflation rose due to the uptick in transportation fares and domestic fuel prices.”