BSP sees inflation uptick over next 3 years as demand recovers

Prices of basic goods and services in the country are expec­ted to rise at a slightly faster pace over the next three years as domestic and internatio­nal markets start picking up the pieces from the devastating effects of the COVID-19 pandemic.

Thus said the Monetary Board of the Bangko Sentral ng Pilipinas (BSP), which decided to adjust baseline forecasts for inflation for the rest of 2020 until 2022 at their latest inte­rest rate-setting meeting.

According to BSP Deputy Governor Francisco Dakila Jr., latest data showed the economy would likely see inflation rise by an average of 2.6 percent by the end of this year, instead of the 2.3-percent average forecasted during the policy making body’s June board meeting.

The Monetary Board also believed the inflation rate for 2021 would rise to 3 percent from its previous baseline assumption of 2.6 percent. Meanwhile, the consumer price index for 2022 was adjusted upward to 3.1 percent from the board’s previous baseline forecast of 3 percent.

“If we look at the major factors that led to the revision in the forecast, we note that the inflation in June and in July was higher than our initial baseline projection, although these inflation outturns were well within our forecast range,” Dakila said.

The central bank’s deputy chief noted that in the six weeks between the Monetary Board’s June and August inte­rest rate setting meetings, the local and international prices of fuel and oil—key drivers of inflation—have gone up.

“These are the major factors that led to the revision in the forecast,” he said. “On the other hand, these factors were partly offset by the sharper than expected contraction in growth, especially during the second quarter, and the continued appreciation of the peso.”

Overall, however, the central bank said the country’s price environment going forward would be “benign.”

Last week, the central bank kept its key interest rates unchanged in line with market expectations, saying the economy needed more time to digest the P1.3 trillion in liquidity it has already poured into the financial system since the start of the pandemic.

The regulator decided to maintain the interest rate on its overnight reverse repurchase facility—on which banks base their own loan pricing—at 2.25 percent. INQ