Bangko Sentral sees inflation ranging from 2.5% to 4.5%

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) expects this year’s average inflation to settle around the middle of its 2.5 percent and 4.5 percent target range and the lower end of the 3.5 percent to 5.5 percent target range for 2010.

In its second quarter inflation report, the BSP said that its inflation outlook is marked by a balance of downside risks and expected pressures on commodity prices.

Downside risks on prices predominated due mainly to expectations of a marked deceleration in global economic activity which is expected to continue to dampen imported inflation and inflation expectations.

“However, there are upside risks that the unprecedented large stimulus programs in the advanced economies could exert inflationary pressures in the medium term and global commodity prices, particularly oil, could rebound,” the BSP said in its report.

The BSP also said that monetary policy will continue to provide support to economic activity to the extent that the inflation outlook allows.

“The BSP will continue to pay close attention to signs of global demand recovery as well as to a possible build-up in commodity price pressures over the medium term, with a view to undertaking timely action towards a non-inflationary recovery in economic activity,” it said.

The BSP said last week that consumer prices could fall in July, for the first time in 22 years due to the overall drop in commodity prices compared to year ago levels.

Inflation in July could settle at a range of -0.3 percent to 0.6 percent from 1.5 percent in June, the BSP said.

The low inflation numbers for July are driven mainly by base effects of the high commodity prices during the same months in 2008, the BSP said.

The monetary authority noted that global prices of petroleum products peaked in July 2008, with Dubai crude reaching around $140 per barrel.

Inflation has been on a decelerating trend since it hit a peak of 12.4 percent in August last year, allowing the central bank to keep an easier monetary policy that is supportive of economic growth.

The monetary authority has reduced its key overnight borrowing rate by two percentage points since December to a record low of four percent.

With the lower inflation figures for July, analysts expect an end to the central bank’ easing cycle. –Iris C. Gonzales (The Philippine Star)