BSP sees price hikes tapering off

Consumers may experience a relief from incessant price increases as early as this year as the central bank now believes the inflation rate—currently at its highest in at least five years —may stabilize earlier than originally predicted.

In a briefing, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo said that based on latest data, he was “sure that numbers will change for the better” compared to the institution’s original forecast of the inflation rate normalizing by 2019.

“Even if the annual (inflation rate) reading (for May 2018) was 4.6 percent, up from 4.5 percent, the month-on- month showed a sustained slowdown from January (to May),” he said. He explained that the flattening trajectory of monthly price hikes indicated that the momentum of price increases was weakening.

“I think we should focus on that because the momentum is dictated by the month-on-month, instead of the year-on-year data,” he added. “Year-on-year data is more for historical purposes.”

Guinigundo is the central bank’s top economist. He regularly briefs the members of the monetary policy advisory committee as well as the seven-man Monetary Board who meet every six weeks to decide on the direction of domestic interest rates.

The Monetary Board will have its next policy setting meeting on June 21. In its last meeting in early May, the Monetary Board raised its key overnight borrowing rate by 25 basis points.

Some analysts believe the May inflation data, which could indicate that inflation is losing steam, may compel the central bank to adopt a wait-and-see attitude before tightening monetary policy further.

“Looking at inflation in 2019-2020, we’re back to the 2-4 percent target,” he said, dismissing the notion that the current bout of high prices could be contained through interest rate hikes.

“You don’t use monetary policy to arrest oil prices and the effects of typhoons or some issues in the rice industry,” Guinigundo said.

He added, however, that the latest consumer price index data were “definitely” a positive development despite the record high headline number.

Furthermore, the central bank official pointed to the results of the latest Consumer Expectations survey that showed Filipinos had remained confident about spending in the current quarter, retained their optimism for the next quarter, and were even more optimistic about their economic prospects over the next 12 months.