Higher power rates, LPG prices seen in inflation uptick in August

MANILA, Philippines—The central bank expects average prices of basic goods and services in the country to have risen at a slightly faster clip in August after easing to levels within the government’s projection in July.

In a statement, the Bangko Sentral ng Pilipinas (BSP) said it projects August 2021 inflation to settle within the 4.1 to 4.9 percent range, due to higher energy prices.

The BSP tagged the culprits as higher prices of liquefied petroleum gas, power distributed by Meralco and key food items. These are further pushed by depreciation of the peso.

“These could be offset in part by the decline in domestic petroleum and rice prices,” the BSP said. The July inflation rate came in at 4 percent.

“Moving forward, the BSP will continue to monitor emerging price developments to help ensure that its primary mandate of price stability conducive to balanced and sustainable economic growth is achieved,” the agency said.

The BSP said it believes the inflation rate—which has remained stubbornly high since the outbreak of African swine fever in late 2019 that decimated the Philippine hog industry—will ease toward the end of 2021 and return to government-projected levels, or 2 to 4 percent, by 2022.

Earlier, BSP Governor Benjamin Diokno reiterated his stance on maintaining interest rates as low as possible for as long as possible to help the Philippine economy weather its deepest postwar slump due to the COVID-19 pandemic.

Currently, the BSP’s overnight borrowing rate, which influences how much banks price their commercial loans, stands at a record low of 2 percent, with market watchers not expecting the monetary authority to raise rates anytime until at least mid-2022.

“The Monetary Board remains keen on sustaining monetary policy support for as long as necessary in order for the momentum of economic recovery to gain more traction as well as to help boost domestic demand and market confidence, especially as risk aversion continues to temper credit activity,” Diokno said.

He warned that the reimposition of quarantine measures to arrest the recent wave of COVID-19 cases could pose a risk to the ongoing economic recovery effort.

To this end, targeted fiscal and health interventions, especially the acceleration of the government’s vaccination program, will be crucial in safeguarding public health and preventing deeper negative effects on the Philippine economy, he said.

TSB