BSP sees higher prices in November, but expects stronger peso, low rice costs to put up fight

Prices were likely to lift their feet in November as a result of higher electricity rates which naturally drags with them prices of other goods and services, according to the Bangko Sentral ng Pilipinas (BSP).

In a statement, the BSP projected inflation in the 11th month of 2019 to settle between 0.9 to 1.7 percent.

The “primary sources of upward price pressures for the month”, according to the BSP, would be costs of gasoline, liquefied petroleum gas and select food items.

The inflation forecast for November was higher than the 0.5 to 1.3 percent inflation projection for October, which saw a 42-month record low inflation of just 0.8 percent.

The Philippine Statistics Authority was scheduled to announce the consumer price index for November on Dec. 5, Thursday.

The BSP had earlier said it expected October inflation rate to be the lowest for this year and said prices of basic goods and services would start creeping up to more normal levels toward the holiday season.

But the BSP said inflation fighters, like lower rice prices and peso strength, were expected to put up a fight when prices in general start to spike.

The BSP, its statement said, “will remain watchful” of conditions that might trigger inflation.

While BSP Governor Benjamin Diokno had earlier said that monetary authorities were done pruning interest rates this year, he said more recently that another rate cut this year was not out of the question. It would largely depend on November inflation, though.

According to ING Bank Manila’s senior economist, Nicholas Mapa, Diokno had reiterated that policy adjustments tend to operate with a delay, ostensibly as adjustments to policy rate take time to be adopted by banks.

As pointed out by Diokno, the lag lasts roughly six to nine months and that the Philippine economy could now just be feeling the combined effects of the 2018 rate hike barrage and the 2019 “rapid fire” rate reduction.

To date, total cuts made by the BSP to the amount of cash banks must keep intact in their vaults stood at 4 percentage points since Diokno took over the BSP earlier this year. Each percentage point releases up to P100 billion in cash into the market.

On top of this string of reserve requirement cuts, the central bank has also cut key interest rate by a total of 75 basis points this year.

Edited by TSB