‘No clear signs of 2nd-round effects on prices’


DESPITE elevated inflation and rising prices in key commodities like oil and meat, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said on Thursday there are no signs of second-round effects on price increases based on their most recent assessment on the country’s inflation dynamics.

Diokno maintained that recent price spikes are “transitory in nature” and are best addressed by non-monetary government measures to augment the domestic supply.

Second-round effects in inflation are usually indirect price increases due to sustained high prices of a key commodity. For example, sustained elevated gas prices could lead to significantly higher transportation costs down the round.

These second-round effects usually raise the flag for central banks to start reining in on inflation through tighter monetary policy actions.

Diokno told reporters elevated prices in recent months are largely caused by weather disturbances, higher global oil prices and higher meat prices owing to the African swine fever.

The governor cited another possible reason as to why there are no second-round effects yet: the economy is still in the early stages of recovery and has unused capacity that is mitigating second-round effects.

“Given the manageable inflation outlook, our priority is to maintain the current monetary accommodative policy for as long as needed to ensure sustained economic recovery,” Diokno said.

“Nevertheless, the BSP stands ready to respond to second-round effects or more broad-based pressures as the economy recovers fully,” the governor added.

Diokno said the BSP’s accommodative policy stance remains guided by the inflation outlook. BSP projections show that inflation will eventually decelerate to the midpoint of the government’s 2 to 4 percent target in 2022 and 2023, according to him. 

The latest inflation print of the country is at 4.8 percent, easing slightly from the 4.9 percent in the previous month. The Philippine Statistics Authority (PSA) is set to announce the country’s October inflation on Friday.

“Our manageable inflation outlook provides us with ample room to keep the monetary policy stance sufficiently accommodative to support the ongoing economic recovery,” Diokno said.

“Inflation expectations continue to be broadly anchored over the policy horizon, with the above-target mean inflation forecast from analysts for 2021 giving way to lower expected inflation in the following year,” he added.

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