THE rising oil prices due to Russia’s invasion of Ukraine could kick local inflation upwards 4 percent this year, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno told reporters via a Viber message on Monday.
Diokno said they are “carefully monitoring” the pass-through of international prices to domestic inflation to calibrate appropriate actions going forward.
“At its February 17 policy meeting, based on data available at that time, the BSP staff projected that average inflation will be 3.7 percent in 2022 and 3.3 percent in 2023—both within BSP’s target range,” Diokno said.
“With the Russia-Ukraine conflict, conditions changed,” he added.
The governor said their sensitivity analysis has shown potentially elevated inflation rates for the year, with new forecasts on the table: If average world price of oil is $95 per barrel, local inflation would hit 4 percent; if it is $120 per barrel, it will be 4.4 percent.
However, if the global price of oil hits $140 per barrel, local inflation will hit 4.7 percent.
The government’s target range of inflation is at 2 to 4 percent.
Meanwhile, the governor said that in terms of trade, direct links of the country with Russia and Ukraine are “negligible.”
In 2021, Diokno said exports to Russia amounted to $120 million—about 0.2 percent of the country’s total exports. Exports to Ukraine, meanwhile, were even lower at $5 million.
“Other economic linkages, through investments, remittances, and tourism were also limited,” the governor said.
“The Philippines’s geographic distance and limited economic link to both Russia and Ukraine, as well as its strong macroeconomic fundamentals, could insulate the domestic economy during the current risk-off episode,” the governor added.
In terms of policy actions to curb inflation, Diokno said initial conditions matter.
“Some countries are starting from high levels of inflation, others at moderate levels and others are within the range forecasts. For example, US inflation is at 7.9 percent, UK at 5.5 percent and the Euro area is at 5.1 percent. The Philippine inflation is at 3 percent—well-thin the forecast range of 2 to 4 percent,” the governor said.
“There is a greater sense of urgency to act for countries with high inflation,” he added. The BSP Monetary Board is set to have its next meeting next week, March 24.