CONTINUED supply chain disruptions could pose an upside risk to inflation next year, the Bangko Sentral ng Pilipinas (BSP) governor said on Thursday.
In a virtual briefing, the governor said the emergence of the Omicron variant may further have an effect on global supply chains as governments reimpose mobility restrictions to curb infections.
“External price shocks which may emanate from shortages and persistent supply chain disruptions pose upside risks to the inflation outlook as manufacturers and retailers could pass on the higher costs of imported production inputs,” Diokno said.
“Upside risks to global inflation remain, as supply chain constraints push input prices higher which may add further pressure to non-oil prices in the coming quarters. The BSP is cognizant of the upside risk to the inflation outlook,” he added.
According to the BSP, the current global supply chain disruptions emanate mainly from the weaker capacity of producers to meet pent-up demand in recovering advanced economies, due, in turn, to labor shortages and pandemic-related mobility restrictions.
In the case of the Philippines, the latest report on the Purchasing Managers Index (PMI) showed that supply-side issues and the lack of availability of raw materials weighed on production in November.
The BSP said earlier this year it expects inflation to revert to the 2 to 4 percent target range for 2022, with its latest forecast at 3.3 percent for next year. Diokno said this already factors in potential upside risks coming from supply chain disruptions.
“The resulting shortages and elevated input prices reverberated throughout the global economy as value chain integration created strong links in price formation and manufacturing operations. Although the increase in prices is expected to slow in the coming years, upside risks to the inflation outlook remain as firms expect supply disruptions to persist until the second half of 2022,” Diokno said.
“In view of a challenging global economic environment and amid the pandemic, the BSP stands ready to utilize its wide range of policy instruments to ensure that monetary settings remain appropriate to mitigate possible spillovers from external developments that may affect domestic inflation and growth dynamics,” he added.