THE Bangko Sentral ng Pilipinas (BSP) expressed confidence in its medium-term assessment of inflation, as the growth of consumer goods prices decelerated back to within target for the first time this year in July.
In a message to reporters on Thursday, BSP Governor Benjamin Diokno said inflation’s drop to 4 percent in July strengthens their view that inflation will average to within target for the year.
“The July 2021 inflation dropped further to 4 percent. This was within the BSP’s forecast range of 3.9 to 4.7 percent,” Diokno said.
“The latest outturn is consistent with the BSP’s assessment that inflation could settle close to the high end of the target range of 2 to 4 percent over the near term before decelerating back to within the target by end of the year as the impact of government supply side measures take effect,” he added.
In their latest monetary policy meeting in June, the BSP said they forecast inflation to hit an average of 4 percent for this year, hitting the ceiling of the government’s target range for the year. It is also up from the 3.9 percent forecast in their previous meeting.
For next year up until 2022, the BSP said inflation is expected to hit an annual average of 3 percent.
“The balance of risks to the inflation outlook remains broadly balanced over the policy horizon. The uptick in international commodity prices due to supply-chain bottlenecks and the recovery in global demand could lend upside pressures on inflation. On the other hand, the emergence of new coronavirus variants and delays in easing lockdown measures are seen to pose downside risks to both demand and inflation,” Diokno said.
The governor said the Monetary Board will consider this latest price development, along with the second quarter 2021 gross domestic product (GDP) outturn in its assessment of the monetary policy stance on August 12.
“The BSP remains watchful over the evolving economic conditions and challenges brought about by the pandemic to ensure that the monetary policy stance remains consistent with its price and financial stability objectives,” Diokno said.
ING Bank economist Nicholas Mapa, however, warned that inflation may not yet be on the downtrend in the coming months.
“Despite inflation dipping back within target in July, we note the recent pickup in food costs and the acceleration of food items by 4.9 percent from 4.7 percent. Given the heft of the food subsector in the overall CPI [consumer price index] basket, we could see inflation pressures elevated in the second half of the year despite extremely soft domestic demand with the impending ECQ [enhanced community quarantine] and ongoing recession,” Mapa said.
The economist, however, said that despite possible bouts of faster inflation, they fully expect BSP to keep policy rates unchanged for the rest of 2021 and well into 2022.
“BSP Governor Diokno has repeatedly stated his preference to provide support for the fledgling recovery and deliver monetary stimulus for as long as ‘it is needed’. The Philippine economy will likely hit a speed bump in the third quarter with overall economic activity to slow further due to the imminent lockdown on 6 August,” Mapa said.
“With the economy reeling from the pandemic, we doubt BSP will even consider ‘pre-emptive’ recalibration of policy rates as policy tightening at this stage will definitely snuff out whatever momentum is left in the economy’s growth engines,” he added.