MANILA, Philippines—Rising international crude oil prices, driven by world economies starting to emerge from the pandemic, could pose a near-term threat to consumer prices in the Philippines, according to the country’s central bank.
In light of this, the Bangko Sentral ng Pilipinas (BSP) said it would remain vigilant in guarding against further inflationary pressure and act preemptively against emerging signals that could push consumer price index higher.
“BSP will continue to monitor and update its outlook for the path of inflation which remains highly uncertain given evolving developments related to the pandemic and vaccine rollout,” BSP Governor Benjamin Diokno said at an online briefing on Thursday (May 27).
He said monetary authorities have already factored the recent uptrend in global oil prices in their latest baseline inflation projections which showed a target-consistent inflation path over the policy horizon.
The latest baseline forecasts indicated that inflation could settle close to the high end of government’s target range of 3 percent, plus or minus 1 percentage point for 2021—more specifically at 3.9 percent by the end of 2021 and 3 percent by the middle of 2022.
According to the BSP, the uptrend in global oil prices in recent months has been driven by changes in supply-demand dynamics. Oil prices were pushed higher in 2021 by improved prospects in global demand as countries gradually recover from the pandemic as oil-producing countries belonging to Opec Plus induce cuts in supply.
This change in oil price dynamics requires more vigilance on the part of the BSP because of their impact on inflation.
Diokno explained that central banks typically accommodate commodity price increases as they tend to be transitory in nature. However, the impact of global demand-supply imbalances on oil prices may become more persistent and could potentially lead to second-round effects in oil-importing economies.
The rebound in global oil prices has been felt in higher prices of domestic petroleum products. This, in turn, contributed to the steady increase of non-food inflation on a year-on-year basis.
The BSP remains on the lookout for possible second-round effects that may require a monetary response, even as underlying inflation and the overall inflation outlook remains manageable in the Philippines due to the amount of prevailing slack in the domestic economy.
“Providing support to domestic demand remains a key priority for monetary policy given the expected path of inflation and the continued downside risks to economic activity,” Diokno said.