THE faster rise of consumer prices in the last month of the year may put the Bangko Sentral ng Pilipinas’ (BSP) easing measures on hold, at least in the early parts of 2021.
After the Philippine Statistics Authority’s (PSA) announcement on Tuesday that inflation hit a 22-month high level of 3.5 percent in December, BSP Governor Benjamin Diokno told reporters that this level of acceleration is well within their expectations for monetary policy.
“The December 2020 inflation of 3.5 percent was within the BSP’s forecast range of 2.9 to 3.7 percent.… The BSP continues to expect inflation to settle within the target range over the policy horizon,” Diokno said.
The governor also said the recent uptrend in inflation is largely “transitory,” reflecting the short-term impact of weather disturbances.
The Philippines’s inflation numbers have been consistently rising toward the latter part of 2020. From 2.3 percent in September, it accelerated to 2.5 percent in October, 3.3 percent in November and up to 3.5 percent in December.
This rise in the country’s inflation will likely push the BSP to pause its easing measures despite earlier pronouncements that they will keep the country’s monetary policy accommodative to curb economic disruptions wrought by the measures used to curtail the spread of the pandemic.
No rate cuts soon
In an assessment, ING Bank Manila economist Nicholas Mapa said with the recent inflation reading, the BSP is not likely to cut policy rates anytime soon.
“With the central bank pushing up its 2021 inflation forecast to 3.2 percent, we do not expect BSP to adjust its main policy rate soon; however, Diokno did hint at a possible reduction to reserve requirements (RR) in the near term,” Mapa said.
“We forecast inflation to remain at 3 percent for first-quarter 2021 with BSP likely keeping policy rates unchanged with Diokno possibly utilizing his provisional 200 bps reduction in RR by first quarter should fourth-quarter 2020 GDP disappoint,” he added.
Looking ahead, Diokno said that while the overall balance of risks to future inflation continues to lean toward the downside, there are emerging upside risks to watch out for.
“Upside risks emanate from the possibility of an early rollout of Covid-19 vaccines in the Philippines, which is expected to ease the existing lockdown measures and expand further operating capacity of the economy,” Diokno said.
“At the same time, a stronger-than-expected world economic recovery as the vaccine is increasingly deployed in key economies abroad could present upward price pressures on global oil and food prices,” he added.
ASF factor
Monetary Board member and former agriculture undersecretary V. Bruce J. Tolentino said African Swine Fever (ASF) consequences coupled by “import controls favoring local producers” contributed to higher meat prices in December.
As for rising vegetable prices, Tolentino explained that this could be attributed to the “long-standing infrastructure and transport bottlenecks that have exacerbated the seasonal increased demand.”
He added that supply disruptions caused by typhoons in the fourth quarter also contributed to the increase in vegetable prices.
“These are the seasonal factors which could have been moderated by infrastructure. Note that historically typhoon damage is concentrated in the last quarter of each year,” he told the BusinessMirror.
“Do note that the source of the increased inflation in December is food—especially meats, fish and vegetables. Not rice—like in past years,” he added.
Nonetheless, Tolentino said the Central Bank expects general stability in prices throughout this year “given the benign behaviors of oil and rice prices.”
“Inflation will remain within the target 3 plus or minus 1 percent range,” Tolentino added.
With Jasper Emmanuel Y. Arcalas
Image credits: Bernard Testa