Fresh fuel price hikes not enough to alter course of inflation, says BSP

A renewed hike in local oil prices is unlikely to disturb the trajectory of inflation, which economic managers are assuming to remain within target in the next two years, according to the Bangko Sentral ng Pilipinas (BSP).

BSP Governor Benjamin Diokno said in a statement that while global oil prices have been on an uptrend this year amid recovery in economic activity, the emergence of the Omicron coronavirus variant brought forward concerns over weaker demand prospects.

This, in turn, led to the recent decline in global crude oil prices. Local pump prices saw a downtrend in November up to the first week of December, and are expected to rise for the second week in a row on Tuesday.

Global crude oil prices impact key drivers of domestic inflation such as domestic petroleum prices. According to the BSP, energy-related items such as petroleum and fuels contributed an estimated 1.5 percentage points to the 4.2-percent inflation in November.

Monetary policy

“The BSP closely monitors global oil demand and supply conditions in its assessment of the outlook for setting monetary policy, and the latest inflation projections already consider these developments,” Diokno said.

“Inflation expectations are likewise well anchored to the target. This gives the BSP room to maintain its accommodative policy stance,” he added.

According to the latest Oil Market report from the International Energy Agency (IEA), global oil demand has been strengthening due to robust gasoline consumption and increasing international travel as more countries reopened their borders.

“However, new [COVID-19 infection] waves in Europe, weaker industrial activity and higher oil prices will temper gains, leaving our forecast for oil demand growth largely unchanged,” the IEA said.

“The world oil market remains tight by all measures, but a reprieve from the price rally could be on the horizon,” the agency said. “Contrary to hopes expressed in Glasgow at COP26 this is not because demand is declining, but rather due to rising oil supplies.”