Inflation in the Philippines is expected to have gone faster in March at 3.7 percent year-on-year or within the expected 3.3 percent to 4.1 percent range amid rising prices of fuel, power and meat as well as a weaker peso, according to the Bangko Sentral ng Pilipinas (BSP).
BSP Governor Benjamin Diokno has not yet indicated that the latest numbers could prompt a hike in policy rates, saying in a statement that the regulator will continue to monitor emerging price developments and possible indirect effects on the cost of living.
“The continued oil price hikes along with high electricity rates in Meralco-serviced areas, higher meat prices, and the peso depreciation are the primary sources of inflationary pressures during the month,” Diokno said.
“These could be offset in part by lower water rates in Maynilad and Manila Water-serviced areas and the decrease in prices of rice, fish and vegetables owing to easing supply constraints,” added.
Target band
Earlier this week, the BSP chief acknowledged that “high inflation was back with a vengeance,” but at the same time said inflation expectations remained anchored to the target band of 2 percent to 4 percent.
Diokno said that for many years, the problem faced by many developed countries was how to nudge inflation higher, given that actual inflation rates were persistently below target rates.
But with the ongoing pandemic, the situation was reversed such that actual inflation rates have exceeded target rates and have remained stubbornly high.
Supply side
However, in the case of the Philippines, inflation pressures are coming from supply side factors. Thus, a monetary response in terms of policy rate adjustment is neither appropriate nor responsive, Diokno said.
“An increase in policy rate will not change the reality that energy and other commodities have surged owing to the Russia-Ukraine conflict,” Diokno said.
“It is when there are clear second round effects on the demand side [such as] higher wages and higher transport fares, that the [BSP] may choose to act to mitigate inflation pressures,” he added.
Analysts expect the BSP to start raising its key policy rate—which has been at a record low of 2 percent since November 2020—by the second semester of 2022.
Bloomberg on Wednesday quoted Diokno as saying that an exit from pandemic-time accommodative policy regime might see the BSP’s overnight borrowing rate rise to 2.5 percent to 2.75 percent, which might be reached in 2023.