The Bangko Sentral ng Pilipinas (BSP) is building hopes that the average rate of increase in prices of goods and services that households commonly consume might return to the 2-4 percent target range in some months of this year.
But full-year inflation rate is still seen to overshoot the target for the third year in a row.
Government economic managers through the Development Budget Coordination Committee (DBCC) had set a goal of herding inflation toward the range of 2.5 percent to 3.5 percent this year after averaging 5.8 percent last year.
In December last year, the DBCC in consultation with the BSP, also brought back the target range to the usual 2 to 4 percent for 2024 through 2028, which was also the goal for 2022.
In an open letter to the President, BSP officer-in-charge Francisco Dakila Jr. said that inflation had gone beyond the upper end of the target mainly due to the rise in oil prices as Russia invaded Ukraine, alongside supply shocks that drove food prices higher amid pent-up demand and a sharp depreciation of the peso.
Based on a DBCC resolution adopted in 2002, in case the inflation target is missed, the BSP is tasked to issue an open letter to the President — and thus to the Filipino public — to explain why.
Since then, inflation targets were missed in 2003 through 2008, 2015 through 2018, and again in 2021 and 2022.
Last year, the Russian invasion of Ukraine caused crude oil prices to rise above $100 per barrel while the continuing impact of an outbreak of African swine fever, which has swept across Asia since 2018, was exacerbated by the spread of avian influenza to hamper domestic output of meat.
Upside risks
“The impact of successive typhoons on agricultural production … also added to the supply-side constraints on some key food items like fish and vegetables,” Dakila said. “The effects of low agricultural productivity combined with lingering import restrictions kept sugar and food prices high.”
He added that the combined rise in food and energy prices eventually spilled over to the prices of other commodities and services, such as transportation and restaurant services.
In response to these, the BSP raised its monetary policy interest rate by a total of 3.5 percentage points to 5.5 percent from 2 percent.
The BSP’s latest forecasts showed inflation had peaked in December 2022 and would fall slowly in 2023 due to easing global oil and non-oil prices, the negative base effects from transport fare adjustments in 2022, as well as the impact of the cumulative policy rate adjustments. INQ