Inflation path still within BSP’s expectations

Published July 6, 2022, 4:16 PM

by Lee C. Chipongian

The elevated consumer price index (CPI) which hit over six percent for the first time in more than three years in June, remains within the Bangko Sentral ng Pilipinas’ (BSP) medium-term inflation path.

“The June 2022 inflation outturn of 6.1 percent is within the BSP’s forecast range of 5.7 to 6.5 percent,” the BSP said in its own statement after the government CPI announcement on Tuesday.

The 6.1 percent is in the middle ground of the BSP’s June inflation forecast range. “This is consistent with the BSP’s assessment of a continued uptick in inflation in the near-term as supply-side pressures persist,” said the BSP.


BSP Governor Felipe M. Medalla has already signalled that on top of the 50 basis points (bps) policy rate increase last May 19 and June 23, a possible 100 bps more is on the table for the next policy meetings. There are still four Monetary Board policy meetings for the year. The next one is on Aug. 18.

“The BSP is prepared to undertake necessary policy actions to bring inflation back to a target-consistent path over the medium term and deliver on its primary mandate of price stability,” said the BSP.

“The upward adjustment in monetary policy rates in May and June should help temper inflation expectations. At the same time, the BSP reiterates its support for the carefully coordinated efforts of other government agencies in implementing non-monetary interventions to mitigate the impact of persistent supply-side factors on inflation,” it added.

The inflation target remains two percent to four percent inflation band in the next two years, however based on the latest average forecasts, the inflation will only return within the target range in 2024. As of June 23, the BSP’s average inflation forecast is five percent for this year, and for 2023 and 2024 it is 4.2 percent and 3.3.percent.

The BSP projects inflation to remain elevated over the coming months due to the continued rise in global commodity prices and more pronounced second round effects on domestic goods and services.

“The balance of risks to the inflation outlook is likewise skewed to the upside for 2022 and 2023, with pressures emanating from the potential impact of higher global non-oil prices, the continued shortage in domestic fish supply, and pending petitions for transport fare hikes due to elevated oil prices,” said the BSP.

Downside risks, meanwhile, are still the weaker-than-expected global recovery and reimposition of mobility restrictions because of a spike in Covid-19 infections.

The June inflation of 6.1 percent was higher than May’s 5.4 percent. The resulting year-to-date average inflation is 4.4 percent in the first half of the year. On a month-on-month seasonally adjusted basis, inflation also increased to one percent in June from 0.5 percent in May.

Majority of commodity groups reported higher or unchanged inflation rates with food and energy-related items as key drivers. Food inflation increased, mainly rice, meat, fruits, and sugar. Vegetable prices slightly eased but still at double-digit growth. Meanwhile, transport inflation, as expected, was higher due to elevated fuel prices and the jeepney fare hikes last month.

“Looking ahead, the BSP will continue to be vigilant against the risks to inflation expectations and further second-round effects, and remains ready to undertake the necessary follow-through monetary policy action to safeguard its price stability objective,” said the central bank.

In the BSP’s latest Monetary Policy Report (MPR), the CPI will accelerate in the next quarters and at the five-percent level for the rest of the second half of this year. However in June, with higher imports and a weakened peso at a 17-year low of P55:$1, the inflation has already climbed past six percent.