BSP says consumer prices on way back to normalcy

The lower inflation rate recorded in November—albeit still relatively high—confirms that high consumer prices that have plagued the country for most of this year are on their way down, the central bank said.

In a message to reporters, Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr. said, however, that regulators “will need to stay vigilant” over the near term since prices of other goods and services, apart from rice and petroleum, continued to remain elevated.

The government announced that the November consumer price index fell to 6 percent after having plateaued at 6.7 percent for September and October, its highest in nearly a decade, thanks to the combined effects of a rice shortage, high international crude oil prices and the Duterte administration’s tax increases this year.

But the central bank chief called the latest number “very encouraging.”

“For the first time we are seeing significant negative month-on-month growth after inflation plateaued,” he said. “It confirms that inflation is heading back to the 2-4 percent target range in response to decisive nonmonetary measures to curb food prices as well as favorable recent developments in highly volatile international oil prices.”

To date, the BSP has raised its key interest rate by a total of 175 basis points over six consecutive meetings of its policymaking Monetary Board since May—its most aggressive liquidity tightening streak since the economic crisis of 2000 during the Estrada administration—in a belated response to the inflation uptrend that began in January.

Central bank planners had said the inflation rate was a purely “supply side” issue that would remedy itself by early 2019 without the need for policy intervention.

On Wednesday morning, Espenilla said the BSP’s “strong” response “significantly reinforced the anti-inflation process through the expectations route and a firmer peso.”

He warned, however, that the more direct impact of the central bank’s moves on economic activity “will take a longer time to take hold.”

“There’s need to pay close attention to the core inflation trend, which continues to rise through November at 5.1 percent,” he said. “Monetary policy will need to stay vigilant to keep inflation under firm control amid expected strong economic growth.”