THE Bangko Sentral ng Pilipinas (BSP) welcomed inflation’s deceleration back to below 4 percent in December, but warned of a potential “temporary” uptick due to the recent typhoon that ravaged the Visayas.
In a statement on Wednesday, BSP Governor Benjamin Diokno said with the 3.6 percent print in December, inflation is on its way to ease close to the midpoint of the target range in 2022 and 2023.
This is in contrast to the 2021 situation, where inflation averaged at 4.5 percent for the year, breaching the 2 to 4 percent target range of the government. The 2 to 4 percent target range is maintained up until 2024.
Although widely expected by the market, the BSP is still mandated by law to write an open letter to the President explaining the breach in target.
In his statement on Wednesday, Diokno also warned that the supply disruptions and agricultural damage from typhoon Odette will likely result in a “temporary uptick in the prices of food items and other necessities over the near term.”
“As with previous episodes of natural disasters, the effective implementation of non-monetary government intervention measures to ensure adequate domestic food supply must be sustained in order to mitigate potential supply-side pressures on inflation,” the governor said.
“The BSP will incorporate the typhoon’s impact into its projections once firm estimates become available. At the same time, the implementation of reconstruction efforts and rehabilitation programs in areas damaged by the storm will be essential to support economic recovery and prevent job losses,” he added.
Looking ahead, the governor expressed readiness to maintain the accommodative monetary policy stance to support the economy’s recovery while also guarding against any emerging risks to its price and financial stability objectives.
ING Bank economist Nicholas Mapa, in his assessment of the inflation numbers, said inflation is likely to be “more subdued” in 2022.
“Despite the breach last year, several factors point to inflation staying more subdued in 2022. First of all, the PSA shift to 2018 as base year for CPI inflation calculations will likely translate to a one-off favorable base effect for lower price gains this year. 2018 was the year where inflation last breached the target, with BSP allowing inflation to surge to 6.7 percent,” Mapa said.
“Secondly, developments related to the global oil market also point to a moderation in crude oil prices as OPEC opted to increase production to help alleviate a tight market. Third, despite strong gains in terms of GDP growth, demand dynamics suggest that the Philippine economy continues to operate below potential with the output gap yet to be closed. We expect inflation to settle within target for the most part of the year,” he added.
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