Decisive monetary action set – BSP chief

With inflation at critical point

With August inflation of 6.4 percent surging past its estimates, Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. said containing elevated rates back to target has reached a new level of urgency.

“It is most critical at this point to restore inflation back to the target range soonest and securely anchor inflationary expectations,” Espenilla said. The BSP’s inflation target remains at twofour percent, he added, which is a twoyear ahead inflation forecast as part of its regular policy review.

Espenilla called August’s 6.4 percent nine-year high – which is way past its single rate 5.9 percent forecast for the month -- an “unfortunate confluence of cost-push factors,” that he said continue "to drive consumer price inflation in August beyond the acceptable target range.”

“Much of it has to do with food supply shocks. Rice in particular,” Espenilla said. “These warrant more decisive nonmonetary measures to fully address.” Government programs such as targeted cash transfers and subsidies to public transport drivers are some of these non-monetary measures.

The BSP in a statement yesterday said the higher-than-expected inflation result is an impact of supply-side factors due to recent weather disturbances and the “continued uncertainty in rice supply (and also) energy and transport prices have contributed to the uptick in inflation.”

“The BSP continues to monitor with increased vigilance the evolving outlook for inflation, along with the public’s inflation expectations as well as further evidence of second-round effects, all of which shall be considered closely in the assessment of the monetary policy stance at the September 2018 Monetary Board policy meeting,” the BSP said. “The BSP reaffirms its strong commitment and readiness to take all necessary policy actions to address the threat of high inflation and deliver on its primary mandate of price stability. (We) also support the implementation of government coordinated non-monetary measures to address the supply-side nature of current inflation pressures.”

The BSP had an August inflation forecast range of 5.5 percent to 6.2 percent but had expected the actual rate to settle at 5.9 percent, higher than July’s 5.7 percent. Espenilla said the elevated oil prices have continued to impact transport and power prices. “At the same time, the peso (along with other currencies) is being adversely affected by emerging market uncertainties and a strong US dollar. These are adding to the cost-push pressures.”

“However, it is equally