DBCC keeps 3-5% inflation target for ’12-’14
The Aquino administration, through the Cabinet-level Development Budget Coordination Committee (DBCC), has retained its inflation target of three percent to five percent between 2012 and 2014 using the 2006-based prices.
The Bangko Sentral ng Pilipinas (BSP) said the inter-agency economic planning body through DBCC Resolution 2012-2 has approved the retention of the inflation target of three percent to five percent over the next two years.
“Under the BSP’S inflation targeting framework for monetary policy, the targets for inflation are set by the government through the DBCC in consultation with the BSP,” the central bank said.
The announcement of the inflation target set by the government forms part of the inflation targeting framework under which the BSP commits to achieve the inflation target over a threeyear period.
Inflation averaged 4.8 percent based on 2006-based prices from 3.8 percent in 2010.
The review of the inflation target was prompt- ed by the decision of the National Statistics Office (NSO) to shift to the 2006-based prices from the previous 2000-based prices.
“The review was deemed necessary to take into account possible significant differences in the statistical properties between the old and the new series and any major structural changes that are reflected in the new index that could influence the achievement of the inflation target,” the BSP said.
The decision to keep the target, according to the BSP, signifies the intention of monetary authorities to maintain desired long-term inflation
level to serve as an anchor for public’s expectations about future inflation to allow them to formulate their investments, consumption, and savings decision with greater certainty.
The central bank added that analysis of available data showed that the old 2000-based prices and the new 2006-based inflation are not statistically different from each other and that there appeared to be no significant upward bias in the new inflation series.
“The BSP remains fully committed to achieving the government’s inflation target that is expected to help provide the macroeconomic environment conducive to a balanced and sustainable growth,” the BSP said.
BSP Deputy Governor Diwa Guinigundo said in an interview with reporters that monetary authorities are convinced that inflation would fall within the target of three percent to five percent amid the soaring price of oil in the world market.
“In its latest assessment of the inflation environment, the BSP’S baseline forecasts indicated that average inflation is expected to remain within the target range in 2012 and 2013, supported by well-anchored inflation expectations,” the BSP said.
Guinigundo added that a stress test conducted by monetary authorities revealed that inflation would still remain within the three percent to five percent target despite the fact that oil price has reached $120 per barrel.
He explained that inflation would move up if oil prices go beyond $120 per barrel but consumer prices would still remain the BSP target.
“Even if we stress this potential shock on the economy in terms of higher oil prices we still expect that inflation will average within the target range of three percent to five percent,” the BSP official said.