Non-monetary measures eyed to curb inflation

Published April 7, 2021, 7:00 AM

by Lee C. Chipongian

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno on Tuesday, (April 6) reiterated his call for government’s timely interventions to prevent the spillovers of inflation supply side pressures to higher transport costs.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno (MB file)

Diokno, citing the Department of Economic Research’s comments on March’s 4.5 percent inflation which was within the BSP forecast range of 4.2 percent to five percent, said however that inflation will return to within target band of two-four percent in 2022 as “supply side influences subside (but) timely and effective implementation of direct measures” by government could “contribute to easing price pressures.”

The BSP has been stressing on these crucial non-monetary interventions such as price ceilings to ease supply side pressures on inflation and preventing them from spilling over as second round effects such as wage and transport fare hikes.

ING Bank economist Nicholas Mapa said non-BSP measures could pull back inflation from breaking five percent level. “Although it may be too early to deem the March 4.5 percent inflation the peak for the year, we do note that the likelihood of inflation hitting five percent (is) now diminishing somewhat,” he said.

For now, Diokno remains confident that the BSP’s accommodative actions are appropriate. The key rate has been steady at two percent, the lowest benchmark rate in BSP history, and likely to remain at this level for the rest of 2021.

A vegetable seller tends to a client at Paco Market. (ALI VICOY / MANILA BULLETIN FILE PHOTO)
A vegetable seller tends to a client at Paco Market. A vegetable seller tends to a client at Paco Market. A vegetable seller tends to a client at Paco Market. A vegetable seller tends to a client at Paco Market. (ALI VICOY / MANILA BULLETIN FILE PHOTO)

In the meantime, Diokno also commented Tuesday that the latest Manufacturing Purchasing Managers’ Index (PMI) of 5.2 percent in March is a source of good news, amid a still elevated inflation and recent surge in COVID-19 cases that resulted to a two-week strict lockdown.

“While the 52.2 PMI in March is a tad lower than the 52.5 posted in February and January, it should be seen as a good sign that factory activity is getting sustainable,” said Diokno. He said the expansion of the first quarter factory activity is “good news” and that the latest PMI also exceeds the ASEAN PMI of 50.8.

The BSP forecasts a full-year 4.2 percent inflation for 2021, assuming that government will not intervene. But with non-BSP government measures, Diokno said last week that inflation rate could still end up below four percent this year.

The BSP’s DER said the balance of risks to inflation outlook is still broadly balanced this year but more on the downside in 2022. “Tighter domestic supply of meat products and improved global economic activity could lend further upward pressures on inflation. However, ongoing pandemic also continues to pose downside risks to the inflation outlook, as the recent surge in virus infections and challenges over mass vaccination programs continue to temper prospects for domestic demand,” it said.

Mapa said the government’s price freeze on meat products and the harvest seasons helped to temper inflation for March. He noted however that transport costs continue to increase due to higher fuel prices and implementation of social distancing restrictions.

“Despite the inflation target breach, BSP has vowed to retain its current accommodative stance, citing the ‘transitory’ nature of the current spike in prices.  Monetary authorities remain hopeful inflation will decelerate once supply-side remedies to ASF takes root although the latest central bank inflation forecasts pegs inflation to settle above target in 2021,” noted Mapa. 

“Nonetheless, we expect BSP to keep policy rates at two percent in order to bolster the economic recovery with several regions now under strict lockdown due to a recent spike in new COVID-19 infections,” he said, adding that “receding concerns about inflation may calm the local bond market in the near term while peso is expected to outperform regional peers as soft import demand limits depreciation pressure.”