BSP equivocates on inflation response as key policy meet looms

The agency tasked with keeping a lid on the country’s inflation rate said on Friday that prices of goods and services accelerated to the top end of its worst expectations, but held out hope that the situation would correct itself eventually.

At the same time, however, Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr. said the Monetary Board would carefully examine the consumer price index for April – which stood at a five-year high of 4.5 percent, based on 2012 prices – for clues as to whether it should raise interest rates when it convenes on May 10.

And despite the spike in prices, the BSP chief refrained from giving a full throated endorsement for an inflation-mitigating increase in its key overnight borrowing rate.

Factors

“The April actual data is on the high side of our forecast for the month,” he said. “At the same time, we note the deceleration of the seasonally adjusted month-on-month inflation.”

Espenilla explained that the latest data are relevant factors that would help determine “the necessity and shape of a measured response to halt potential build up in inflationary expectations.”

“Such expectations seem to be feeding off essentially cost-push price pressures that may be transitory in nature,” he assured, repeating the BSP’s mantra that local prices would stabilize by 2019.

On Friday, the government announced that the consumer price spike in April also pushed the four-month average this year to 4.1 percent, breaching the official 2-4 percent target range.

Price hikes

The Philippine Statistics Authority attributed the faster upsurge in prices of basic goods to the increase in the prices of alcoholic beverages and tobacco (up 20 percent); clothing and footwear (up 2.2 percent); housing, water, electricity, gas and other fuels (up 3 percent); furnishing, household equipment and routine maintenance of the house (up 2.8 percent); health (up 2.8 percent); transport (up 4.9 percent); recreation and culture (up 1.5 percent); and restaurant and miscellaneous goods and services (up 3.4 percent).

The spike in domestic inflation was set off by the tax hike package of the Duterte administration that took effect at the start of 2018, but has since been aggravated by an uptrend in the prices of crude oil on the international market.

The central bank has come under increasing pressure in recent weeks to respond decisively to rising prices, after leaving its overnight rates – on which banks base their lending rates – unchanged during the last three meetings when inflation was picking up.