Inflation to continue decline towards year-end

Published August 5, 2021, 1:08 PM

by Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) said Thursday that inflation is behaving as expected and is still seen to drop within the two-four percent target by the end of 2021.


BSP Governor Benjamin E. Diokno said the latest July inflation of four percent, lower than 4.1 percent in June, was within the BSP’s 3.9 percent to 4.7 percent forecast for the month of July.

Diokno, citing the BSP Department of Economic Research, said the July rate is “consistent with the BSP’s assessment that inflation could settle close to the high-end of the target range of two-four percent over the near term before decelerating back to within the target by end of the year as the impact of government supply-side measures take effect.”

For now, the BSP continue to assess as well that inflation is projected to “remain firmly within the midpoint of the target for 2022 to 2023.”

“The continued implementation of direct non-monetary interventions to ease supply constraints remain crucial in tempering inflation pressures,” said the BSP, adding that the balance of risks is still broadly balanced.

“The uptick in international commodity prices due to supply-chain bottlenecks and the recovery in global demand could lend upside pressures on inflation. On the other hand, the emergence of new coronavirus variants and delays in easing lockdown measures are seen to pose downside risks to both demand and inflation,” said the BSP.

The central bank’s Monetary Board will meet next week, August 12, for its policy meeting review.

ING Bank economist Nicholas Mapa said the market expect the BSP to maintain its two percent interest rate while the economy is recovering.

“Despite possible bouts of faster inflation, we fully expect BSP to keep policy rates unchanged for the rest of 2021 and well into 2022,” said Mapa in a commentary.

The two-week lockdown on August 6 to 20, to stem the rise in COVID-19 cases, will slow the pace of recovery. “The Philippine economy will likely hit a speed bump in the third quarter with overall economic activity to slow further due to the imminent lockdown on August 6. With the economy reeling from the pandemic, we doubt BSP will even consider ‘pre-emptive’ recalibration of policy rates as policy tightening at this stage will definitely snuff out whatever momentum is left in the economy’s growth engines,” said Mapa.

Security Bank Corp.’s economist, Robert Dan Roces, who predicted a flat four-percent inflation for July, said inflation upside risks remain, mainly the oil price movements. “(Oil price remains) the primary upside risk as fuel and utilities inflation track changes in oil prices. Transportation inflation may return as a risk with the reimposition of the ECQ in August (while( restrictions in passenger capacity may again result in higher transport costs,” he said.

During the Monetary Board’s fourth policy meeting, the BSP revised its inflation forecast for 2021 to four percent from its previous (May 13) projection of 3.9 percent.

For 2022, the forecast is three percent, also higher than earlier estimate of 2.9 percent. For the first time, the BSP announced a 2023 inflation projection of three percent last June 24.