BSP sees inflation easing in 2022 but tells gov’t to untangle supply knots

MANILA, Philippines—The March inflation rate reinforced the Bangko Sentral ng Pilipinas’ (BSP) projection of a rise in consumer price index (CPI) exceeding the government’s full year forecast range but likely returning to normal by 2022.

In a statement, BSP Govenor Benjamin Diokno said the 4.5-percent inflation rate in March 2021 reflected “the impact of supply-side constraints on domestic prices of key food commodities, such as meat, as well as the continuing uptick in international oil prices.”

The BSP had earlier forecast the March inflation rate to land between 4.2 and 5 percent, with a “point projection” of 4.6 percent — slightly lower than the February CPI of 4.7 percent.

“Nevertheless, inflation is still seen to return to within-target band in 2022 as supply-side influences subside,” Diokno said. He repeated his call for “timely and effective implementation of direct measures” by the national government to ease upward pressure on prices.

Prices of basic goods and services spiked late in 2020 after a shortage of pork caused by an African swine fever outbreak that decimated large swaths of the country’s hog industry, along with supply bottlenecks that obstructed the flow of other food items.

ING Bank Manila chief economist Nicholas Mapa said he expected BSP to keep policy rates at the current historic low of 2 percent to bolster economic recovery with Metro Manila and nearby provinces now under strict lockdown due to a seemingly endless surge of coronavirus infections.

“BSP will only consider recalibrating monetary policy should second round effects such as wage hikes become apparent or if inflation expectations become ‘disanchored’,” Diokno said.

He added that receding concerns about inflation may calm the local bond market in the near term while the peso was expected to outperform regional peers as soft import demand limits depreciation pressure.

The latest central bank assessment of the inflation outlook indicated that risks remained broadly balanced around the baseline path in 2021, while leaning toward the downside in 2022.

“Tighter domestic supply of meat products and improved global economic activity could lend further upside pressures on inflation,” Diokno said.

“However, the ongoing pandemic also continues to pose downside risks to the inflation outlook, as the recent surge in virus infections and challenges over mass vaccination programs continue to temper prospects for domestic demand,” he said.

The central bank chief doused expectations that regulators would tighten liquidity in response to the inflation spike, saying the policy making Monetary Board believes that the prevailing policy settings “remain appropriate” to support the government’s broader efforts to facilitate economic recovery.

“At the same time, the Monetary Board emphasizes that the timely implementation of non-monetary interventions is crucial in mitigating the impact of supply-side pressures on inflation and thereby preventing them from spilling over as second-round effects,” he said.

TSB