BSP sees fuel, meat prices pushing inflation uptick in January

MANILA, Philippines—The central bank expects the country’s inflation rate to have inched up further in January due to higher fuel and meat prices, aggravated by higher power rates and an increase in taxes for alcoholic beverages and cigarettes.

In a mobile phone message to reporters, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the monetary regulator is projecting the consumer price index for January to be at or around 3.7 percent.

The agency’s economists are also expecting inflation rate for the month to come in between 3.3 percent and 4.1 percent.

Either projection is higher than the December 2020 inflation rate of 3.5 percent and the central bank’s forecast of 2.9-3.7 percent for the period.

Diokno said the inflationary pressures “could be partly offset by stable rice prices, lower prices of selected fish and vegetables as well as the continued appreciation of the peso.”

“Going forward, the BSP will remain watchful of economic and financial developments to ensure the delivery of its primary mandate of price stability conducive to a balanced and sustainable economic growth,” he said.

Earlier, the central bank chief said the pace of price increases for basic goods and services in the country will likely remain within forecasts in the foreseeable future.

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

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

The BSP’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 rollout of coronavirus vaccines in the Philippines, which is expected to ease the existing lockdown measures and expand further the 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 pressures on global oil and food prices.

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.

TSB