BSP chief says: Uptick in inflation temporary; will not exceed 5% this year
Published Mar 6, 2018 12:00 am
By Lee C. Chipongian
Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. yesterday said the rising inflation rate of the last two months is temporary and, eventually, price stability resumes with a predictable inflation path.
The BSP also sees no reason to be alarmed, already considers the February inflation of 4.5 percent (2006-based) – higher than January’s four percent – as “water under the bridge” particularly since for this year, Espenilla said inflation rate will not climb above five percent. “We don’t see it exceeding five percent for 2018. We expect it to decline and come back to target (of two percent to four percent) in 2019. This is what we see (and) we will revalidate that in the next few weeks.”
Bangko Sentral ng Pilipinas Governor Nestor Espenilla speaks at the Management Association of the Philippines economic briefing yesterday. (Jansen Romero)
Espenilla said the 2019 forecast – currently at 3.5 percent – is not threatened. “There’s no evidence of (threats) but we will be reviewing it soon enough on March 22 (the next policy stance meeting). We will have to update our data and we’ll take another look,” he said, adding that BSP policy decisions are data-driven rather than sentiment-driven.
The BSP chief reiterated that inflation expectations are not yet hit by rising rates nor does he think that if they do not tweak key rates now, that they will be “late to the party.”
“Right now if you look beyond, or go beyond the market talk, the forecasts we are seeing seems to be quite aligned with the way we see market is evolving. So, based on today, we see no evidence of inflationary expectations (being out of turn),” said Espenilla.
“The operative word is temporary,” he said. “How temporary is temporary is what needs careful analysis.” This was his comment yesterday after the government announced the February inflation of 4.5 percent based on the 2006-CPI series (Consumer Price Index). Using the rebased 2012 series, the rate was 3.9 percent.
Espenilla said they are not inclined to overreact every time CPI increases. Inflation of four percent (2006-base) in January and 4.5 percent in February are higher than the two percent to four percent official BSP target for the next three years. The BSP’s forecast for February in the meantime, was four percent to 4.8 percent.
Espenilla has often said that the impact of the tax reform program on inflation path is temporary, while the upside pressures are carefully monitored such as fuel prices and select food prices.
“Let’s not forget that monetary policy operates with a long lag,” he explained. “Whatever monetary policy action we do now, will more likely be felt in 2019 and beyond rather than 2018. That’s why we don’t necessarily react to February, 2018 but must look much further ahead and rely on forecasts.”
Espenilla said government inflation forecasts based on 2006 or 2012 CPI, will remain intact. The base year is the benchmark against prevailing prices.
“There’s no need to change our inflation target with the rebasing. Inflation target basically defines where we want to take inflation,” he said. “What has happened in the rebasing is that basically – independent of the BSP – technicians using established methods put forward a better way to measure inflation (and) based on that we have a better measuring instruments so there’s no need to change the target.”
The last time the Philippine Statistics Authority rebased CPI was in 2011 with the 2006 base from 2000.
CPI is an indicator of the change in the average retail prices of a fixed basket of goods and services commonly purchased by households relative to a base year. The CPI is used in calculating the inflation rate and purchasing power of the peso, said the BSP.
Bangko Sentral ng Pilipinas Governor Nestor Espenilla speaks at the Management Association of the Philippines economic briefing yesterday. (Jansen Romero)
Espenilla said the 2019 forecast – currently at 3.5 percent – is not threatened. “There’s no evidence of (threats) but we will be reviewing it soon enough on March 22 (the next policy stance meeting). We will have to update our data and we’ll take another look,” he said, adding that BSP policy decisions are data-driven rather than sentiment-driven.
The BSP chief reiterated that inflation expectations are not yet hit by rising rates nor does he think that if they do not tweak key rates now, that they will be “late to the party.”
“Right now if you look beyond, or go beyond the market talk, the forecasts we are seeing seems to be quite aligned with the way we see market is evolving. So, based on today, we see no evidence of inflationary expectations (being out of turn),” said Espenilla.
“The operative word is temporary,” he said. “How temporary is temporary is what needs careful analysis.” This was his comment yesterday after the government announced the February inflation of 4.5 percent based on the 2006-CPI series (Consumer Price Index). Using the rebased 2012 series, the rate was 3.9 percent.
Espenilla said they are not inclined to overreact every time CPI increases. Inflation of four percent (2006-base) in January and 4.5 percent in February are higher than the two percent to four percent official BSP target for the next three years. The BSP’s forecast for February in the meantime, was four percent to 4.8 percent.
Espenilla has often said that the impact of the tax reform program on inflation path is temporary, while the upside pressures are carefully monitored such as fuel prices and select food prices.
“Let’s not forget that monetary policy operates with a long lag,” he explained. “Whatever monetary policy action we do now, will more likely be felt in 2019 and beyond rather than 2018. That’s why we don’t necessarily react to February, 2018 but must look much further ahead and rely on forecasts.”
Espenilla said government inflation forecasts based on 2006 or 2012 CPI, will remain intact. The base year is the benchmark against prevailing prices.
“There’s no need to change our inflation target with the rebasing. Inflation target basically defines where we want to take inflation,” he said. “What has happened in the rebasing is that basically – independent of the BSP – technicians using established methods put forward a better way to measure inflation (and) based on that we have a better measuring instruments so there’s no need to change the target.”
The last time the Philippine Statistics Authority rebased CPI was in 2011 with the 2006 base from 2000.
CPI is an indicator of the change in the average retail prices of a fixed basket of goods and services commonly purchased by households relative to a base year. The CPI is used in calculating the inflation rate and purchasing power of the peso, said the BSP.