On inflation

While the June inflation out-turn is slightly higher than the forecast range for the month, it remains broadly in line with the BSP’s earlier assessment of predominant upside risks to the inflation path and of inflation remaining elevated in 2018. The peak will probably occur sometime in the third quarter before converging to the inflation target of 2.0-4.0 percent in 2019, consistent with the BSP’s two-year policy horizon. In fact, the January to June average inflation rate of 4.3 percent is generally aligned with the BSP forecasts as well as most market projections to date. The BSP has always been deliberate in its approach to monetary policymaking. The policy rate hikes in May and June are timely increases that could help arrest potential second round effects by tempering the buildup in inflation expectations.

The BSP continues to see supply- side factors as the main drivers of overall inflation. The uptick in June, in particular, partly reflects base effects as well as weather- related supply disruptions, and school opening. Hence, the perceived intensification of “imbalance” in inflation is temporary. The BSP will remain firmly on guard against the risks to the public’s inflation expectations and emerging second- round effects. The BSP is therefore ready to undertake any follow- through policy rate action necessary to ensure that inflation expectations are anchored in order to safeguard the BSP’s inflation objective.