BSP sees inflation uptick in December

Prices of goods and services are expected to have risen at a faster clip in December on the back of seasonal factors as well as higher commodity prices, according to the country’s central bank.

In a statement, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the monetary planner’s economists expected the official inflation rate for the last month of 2020 to settle within the 2.9-3.7 percent range.

This is potentially higher than the November inflation rate of 3.3 percent, which exceeded the central bank’s previous forecast range of 2.4-3.2 percent—a phenomenon authorities described as “transitory.”

“Higher prices of domestic petroleum products and key agricultural items contributed to upward price pressures during the month,” the BSP chief said, adding that these factors could be partly offset by the downward adjustment in electricity rates in Meralco-serviced areas, along with slightly lower rice prices and the continued appreciation of the peso.

“Looking ahead, the BSP will continue to monitor economic and financial developments to ensure that its primary mandate of price stability conducive to balanced and sustainable economic growth is achieved,” Diokno said.

Earlier this month, the central bank chief said that the average inflation rate was still expected to settle within the government’s target range of 3 percent, plus or minus 1 percentage point, for 2020-2022, as the impact of supply disruptions due to recent typhoons was expected to be largely transitory.

As this developed, the central bank said “downside risks” to the global and domestic economy remained despite recent progress in developing vaccines for COVID-19.

“Logistical challenges in the distribution of the vaccine would have to be addressed before the recovery could resume,” Diokno said. “In the near term, uncertainty remains high following the resurgence of the virus in the US, Europe and parts of Asia.”

He warned that the reimposition of lockdowns could further dampen economic recovery.

Last month, the central bank implemented a surprise 25-basis point rate cut, lowering its key interest rate further to an all-time low of 2 percent.

With the spike in the November inflation rate, the resulting negative real interest rate now stands at 1.3 percent, representing the net erosion in the peso’s purchasing power.

Diokno had also called for more fiscal spending programs to take advantage of the cheap cost of funds in the local financial system amid emerging data that banks continued to avoid risky lending activities and borrowers continued to shy away from loans—activities that could help restore economic growth.

Nonetheless, he stressed that monetary authorities were prepared to do more going forward.