BSP sees benign PH inflation for foreseeable future

The pace of price increases for basic goods and services in the country will likely remain within forecasts over the foreseeable future, as confirmed by the latest data, according to the central bank.

In a statement, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the December 2020 inflation of 3.5 percent was within the monetary regulator’s forecast range of 2.9-3.7 percent.

The latest inflation outturn brings the average full-year inflation for 2020 to 2.6 percent, which is within the national government’s target of 3 percent, plus or minus 1 percentage point.

“The BSP continues to expect inflation to settle within the target range over the policy horizon,” the central bank chief said.

Diokno said the recent uptrend in inflation was seen to be “largely transitory” reflecting the short-term impact of weather disturbances.

The central bank’s planners believe that the overall balance of risks to future inflation continues to lean toward the downside owing mainly to the continued uncertainty caused by the pandemic on domestic and global economic activity.

Nonetheless, upside risks emanate from the possibility of an early roll out of COVID-19 vaccines in the Philippines, which is expected to ease the existing lockdown measures and expand further operating capacity of the economy.

At the same time, a stronger-than-expected world economic recovery as the vaccine is increasingly deployed in key economies abroad could present upward price pressures on global oil and food prices.

“The BSP stands ready to deploy its full arsenal of instruments as needed in fulfillment of its mandate to maintain price and financial stability conducive to sustainable economic growth,” Diokno said.

Last December, 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.

The resulting actual rate of 3.5 percent was 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.

Last November, 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. INQ