Analysts, media made 2018 inflation worse, says BSP

Did market analysts and business reporters make last year’s inflation spike worse by scaring the public into believing that consumer prices would continue rising for a prolonged period?

The second-most senior of the Bangko Sentral ng Pilipinas seems to think so—and, as such, is counseling journalists to avoid reporting on short term market gyrations and, instead, focus on long term trends.

Speaking before economic journalists recently, BSP Deputy Governor Diwa Guinigundo assailed this interaction between economists who wrote about “runaway inflation” in 2018 and the journalists who reported these analyses as having aggravated the situation.

“Unfortunately, we have seen the proliferation of some market analysts who would analyze the dynamics of inflation based on one-month ago reading and prescribe monetary policy to the BSP on the basis of history,” he told members of the Economic Journalists Association of the Philippines last Friday. “This is not exactly how one reads the analogue of monetary developments.”

These market watchers, he said, wrote their analyses in a way that would require immediate decisive monetary policy tightening.

To make matters worse, reporters highlighted these analysts’ views, resulting in a groundswell of demand for the central bank to raise interest rates to rein in the consumer price index that had peaked at 6.7 percent in September and October 2018—their highest levels in almost a decade.

For the entire 2018, the inflation rate averaged 5.2 percent, far above the central bank’s original target range of 2 to 4 percent, due to the combined effects of a nationwide rice shortage, high crude oil prices in the international market and the implementation of the Duterte administration’s excise tax hikes.

“Unfortunately, our local media gave some prominence to this type of analysis,” Guinigundo said. “As a result, the markets’ inflation expectations spiraled, demand mounted for the BSP to go on a full charge to tighter monetary policy amounting to a total of 175 basis points.”