The sudden spike in prices of goods and services in the Philippine economy is a “temporary” phenomenon that central bank planners expect to stabilize eventually, the country’s top monetary official said on Tuesday.
In a statement, Bangko Sentral ng Pilipinas Gov. Nestor Espenilla Jr. said the January inflation rate – which, according to government, hit a three-year high of 4 percent – was “expected” regulators, even as he admitted that the figure was “at the top end” of their forecasts.
The latest inflation rate is up significantly from the 3.3 percent posted in December, according to the Philippine Statistics Authority, due to higher costs of food, beverages and tobacco – the most aggressive increase in prices since October 2014.
The BSP chief attributed the higher pace of price increases to the combined effects of the Duterte administration’s tax hikes implemented last month, and the rise in world oil prices, “and food [prices] to some extent.”
The acceleration of the inflation rate in January caught market watchers off guard and prompted speculation that the central bank would hike its key interest rates when the policy making Monetary Board convened on Thursday.
“BSP could hike rates as early as Thurs following the surge in January headline consumer price index,” Bank of the Philippine Islands lead economist Jun Neri said in a post on Twitter following the inflation announcement.
Meanwhile, ING Bank economist Joey Cuyegkeng said “the likelihood of a tightening move at Thursday’s meeting has increased significantly.”
Nonetheless, Espenilla gave no indication that the central bank would be jolted into tightening monetary policy earlier in the year because of the latest inflation numbers.
“We think these are temporary drivers of inflation and would eventually stabilize,” he said.
Espenilla will likely come out with more hawkish language going forward, or move forward plans of monetary tightening, f the BSP opts to keep interest rates unchanged this week
The central bank chief said that the central bank is ready to hike policy rates if it sees that price increases threaten to spiral out of control.
“The BSP will be closely monitoring the situation and stand ready to take timely action based on our evaluation of all relevant data,” he said. /je