Despite inflation spreading to non-food commodities, the Bangko Sentral ng Pilipinas (BSP) remains confident that inflation will fall within the government’s target range by October this year.
In his speech at the Genera Membership Meeting of the Chamber of Thrift Banks (CTB) on Friday, BSP Governor Felipe M. Medalla said this is based on the recent forecast of the BSP that inflation expectations would be slower this year and next year.
On Thursday, the Monetary Board raised interest rates by 25 basis points to 6.25 percent. This is the lowest increase in key policy rates since May last year, and is underpinned by expectations that inflation would average 6 percent this year and 2.9 percent next year.
“If you look at this chart closely, we will have below core inflation, if our forecast is correct, by October and then back to normal inflation in the rest of the year. Of course, it is very hard to forecast especially the future,” Medalla said in the event in Makati City.
However, Medalla said while private sector economists and analysts’ inflation expectations are near BSP’s own figures, there are still a number of concerns, which may need the country’s attention.
Medalla noted that the shock being experienced by the economy would likely last for 19 to 20 months. This is longer than what was initially expected and worse than the longest shock experienced by the economy at around 15 months.
Given this, non-food items are already beginning to see higher prices, similar to that of food items. Out of over 300 commodities, Medalla said 206 were above 4 percent and 109 items have seen within or below target inflation rates.
“Forecasts are forecasts. And the question is what is the risk to the forecast? Right now our assessment is there’s greater probability on the high side and its still wrong on the low side. Okay, I don’t have time to discuss in detail why but there are many elements in the forecast that are more likely it doesn’t happen, the higher side is more likely to happen than the lower side,” Medalla explained.
Medalla said analysts expect inflation could average 6.1 percent this year; 3.7 percent next year; and 3.6 percent 2025.
The non-monetary interventions being made by the government, Medalla said, is where he is most confident. He said the President and the Cabinet are bent on making food cheaper through importation.
The BSP chief said these kinds of interventions would be crucial in bringing down inflation.