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High inflation seen to persist until Q3

By: - Reporter / @daxinq
/ 04:12 AM March 08, 2021

The central bank expects the country’s inflation rate to remain just barely within the government’s forecast range for the year amid the spike in the prices of basic commodities that will likely persist until the third quarter of this year.

According to the recently released minutes of last month’s Monetary Board meeting, the seven-member group of the Bangko Sentral ng Pilipinas that determines interest rate policy in the Philippines is projecting an average inflation rate of 4 percent for 2021, which is the top end of the official forecast range of 2 to 4 percent.

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Transitory impact

“The upward revision in the 2021 forecast was due largely to the higher-than-expected inflation outturns in December 2020 and January 2021 and the increase in global commodity prices,” according to the minutes of the meeting. “Meanwhile, the forecast for 2022 was slightly lower compared to the previous round due primarily to negative base effects.”

The policy-making body said the latest baseline forecasts expected inflation accelerating beyond the high-end of the target range for the first three quarters of the year due to the transitory impact of supply-side price pressures as well as positive base effects.

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For next year, the inflation rate is expected to average 2.7 percent.

Broadly balanced

The minutes showed that the Monetary Board believed that inflation risks appeared to be broadly balanced for 2021 but would swing in favor of a downtrend next year.

In particular, the group cited supply side price pressures from oil and meat prices along with the impact of an earlier rollout of COVID-19 vaccines on domestic economic activity that could push inflation higher.

Meanwhile, lower tariff rates on meat products and the potential impact on global and domestic economic prospects due to delays in mass vaccination and the spread of new variants of the virus could cap price increases going forward.

Last month, the central bank chose to keep its key interest range unchanged at a historic low of 2 percent—a level that was reached due to aggressive monetary-policy easing last year in an attempt to contain the economic fallout from the coronavirus pandemic.

The regulator indicated that it would likely keep interest rates unchanged when the Monetary Board convenes later this month to tackle the recent spike in consumer prices.

This development comes after the government announced on Friday that the inflation rate for February rose to 4.7 percent, exactly as the BSP’s economists had predicted.

Benjamin Diokno, the BSP Governor, said the latest outturn was “consistent” with the central bank’s assessment of a transitory uptick in inflation in the first half of 2021, “reflecting the impact of weather-related disturbances, the African Swine Fever on food prices, higher global oil prices as well as positive base effects.”

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TAGS: Business, coronavirus Philippines, COVID-19, Inflation
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