THE surprise uptick in the country’s inflation rate in May will not derail the Bangko Sentral ng Pilipinas’s (BSP) monetary-policy course in the policy horizon, its chief told reporters on Friday, as the data point is not seen as a “major departure” from the general downward trend.
Speaking at the BusinessMirror’s Coffee Club Forum in Makati City, Central Bank Governor Benjamin Diokno said the rise in the country’s price growth in May is a “one-off” and gave the assurance that their models still point to a deceleration in the overall inflation print toward the end of this year.
Just this week, the Philippine Statistics Authority (PSA) reported that the country’s inflation hit 3.2-percent print in May—an uptick from the 3 percent in the previous month but lower than the 4.6 percent in the previous year. The data, which was released on Wednesday, showed that inflation snapped its six-month declining trend in May.
The country’s inflation started to decline in November 2018 after hitting its peak of 6.7 percent in September and October last year. The decline was a result of concerted efforts from economic managers to put in place monetary and nonmonetary policy levers to bring down the growth of prices.
The BSP, for its part, made rate hikes to the tune of 175 basis points in 2018—one of their most aggressive cycles to date—to curb inflationary pressures. A few months after, the BSP started to shift its direction toward easing—with its latest move being a cut in its main rate by 25 basis points.
Asked about the surprise inflation uptick’s effect on the BSP’s future monetary-policy direction, Diokno said: “It has no effect because it’s really a part of the trend. It is not a major departure from the trend. We are optimistic that inflation will be 2 or below 2 percent by the third quarter.”
He added, “Overall, I think inflation will be right there: at 2 to 4 percent by the end of the year.”
Election knee jerk
National Statistician Claire Dennis S. Mapa said the main factors for the increase in inflation in May were higher food and nonalcoholic beverages, which increased to 3.4 percent, and housing, water, electricity, gas and other fuels which rose to 3.3 percent.
“I am not worried because my own theory, aside from what was discussed by Dennis Mapa, our new statistician, is that May was the election month. There was a lot of money floating around,” Diokno said.
“I am not worried. This is one-off. In fact, if you look at the data we are expecting inflation to be around 2 percent or even less by the third quarter because of the base effects,” he added.
It was in the third quarter of 2018 when inflation hit its peak of 6.7 percent before consistently going down to the 3-percent levels as seen in recent months.
In the May 9 monetary-policy meeting—where the BSP cut its main policy rates by 25 basis points—the Central Bank reduced its inflation forecast to 2.9 percent from the earlier 3-percent forecast about two months ago.
The reduction in the inflation forecast was based on the lower actual monthly inflation in the first four months of 2019, the lower growth for the year, lower cash-supply growth, as well as the lower global growth for the year.
For next year, however, the inflation projection was scaled upward to 3.1 percent from the earlier 3-percent forecast—which the BSP attributed to increases in global oil prices and adjustments in jeepney fares.
The governor, however, seemed to open the door to yet another tweak in that inflation forecast, because he pointed to a sustained deceleration in global oil prices.
The next monetary policy of the BSP is scheduled on June 20. This will be the BSP’s fourth monetary-policy meeting of the year.
Image credits: Bernard Testa