Pandemic fallout to keep PH inflation in check, BSP says

Prices of basic goods and services would likely remain benign over the near term as the local economy continues to struggle with weak demand due to the coronavirus pandemic, the central bank said on Friday.

At the same time, howe­ver, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno cautioned that the volatile cost of fuel on the international market poses a near term risk on the inflation rate.

The central bank chief made this statement after the government announced the official inflation rate for May at 2.1 percent, which continues the downtrend established in recent months.

“The latest inflation number is consistent with the prevailing assessment by BSP that inflation is expected to remain benign over the policy horizon due largely to the adverse impact of the pandemic on the domestic and global economy,” Diokno said.

The May 2020 inflation of 2.1 percent was within the BSP’s forecast range of 1.9-2.7 percent, having dropped from 2.9 percent in January, 2.6 percent in February, 2.5 percent in March and 2.2 percent in April.

“The latest baseline forecasts indicate that inflation is likely to settle below the midpoint of the government’s target range of 2-4 percentage points for 2020 and 2021,” he said.

The central bank chief believed the domestic economy would exhibit a U-shaped recovery path and bounce back to its potential output growth in 2021 once the impact of the government’s fiscal and monetary measures gain traction.

“[But] the volatility of oil prices remains a source of inflation risk,” he warned. “Meanwhile, global rice prices continue to increase owing to lower output among major rice producers in the Asean region amid the ongoing drought in the Mekong Delta.”

Diokno called on other sectors of government to implement “urgent and carefully coordinated measures to ease the adverse effects of the coronavirus pandemic on individuals and firms, with a view toward preventing any long-lasting economic and social damage.”

Read more...