BSP sees 2%-4% inflation until 2022; 3.7%-4.5% for February

Inflation rate average is expected to stay within the government’s twofour percent target until 2022, the Bangko Sentral ng Pilipinas (BSP) announced.

The inter-agency Development Budget Coordination Committee (DBCC) which the BSP is part of, has approved the setting of the two-four percent inflation target for another three years, in 2020, 2021 and 2022. The 2019 target has been previously announced, also at two-four percent. In 2018, because of oil price volatility and rice supply issues, this target was breached with a 5.1 percent end-year average.

According to the BSP, the target range remains an “appropriate” medium-term goal of price stability “that is optimal for the Philippines given the current structure of the economy and outlook of macroeconomic conditions over the next few years.”

For the month of February, the BSP said inflation could be lower at 3.7 percent from January’s 4.1 percent. The target band for the month is 3.7 percent to 4.5 percent.

The Monetary Board has kept key policy rates unchanged for the past two meetings after raising rates by 175 basis points from May to November last year to temper inflation from further rising.

“(We) will continue to be watchful of evolving price trends to ensure that the monetary policy stance remains appropriate to maintaining price stability that is conducive to a balanced and sustainable growth of the economy and employment,” said the BSP Department of Economic Research which announced the February forecast. It said the higher domestic oil prices and the upward adjustment in electricity rates provided upside price pressures to inflation during the month.

“These may be partly offset by lower prices of rice and other agricultural commodities given the appreciation of the peso and ample supply particularly of rice following the recent harvest and arrival of rice imports,” the DER added.

The next Monetary Board policy meeting is on March 21.

In the meantime, for the mediumterm outlook, the BSP said it will remain watchful of price developments to “ensure that the monetary policy stance remains appropriate in keeping inflation within target.”

“Improved productive capacity of the economy, fueled by higher infrastructure investments by the National Government (NG), supports achieving robust economic growth amid a low and stable inflation environment,” it said.

The high inflation in 2018 which peaked at 6.7 percent in September and October, were due to transitory supply-side factors such as global oil price volatility, higher excise taxes, and weather disturbances “that affected food supply, along with moderate demand impulses.”

“The BSP’s latest inflation projections indicate that inflation is likely to return to the target range over the medium term as the impact of supply-side shocks dissipate,” said the BSP. The government’s inflation target is defined in terms of the average year-on-year change in the consumer price index over the calendar year.

“Likewise, inflation expectations have stabilized and are seen to decline in 2019 and 2020. Non-monetary measures have also been deployed by the NG to address supply shocks directly in the short run and the structural problems in the food/agriculture industry in the long run,” it added.