Inflation may creep up, says BSP chief

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) warned that inflation expectations could turn upward but would still fall within the three percent to five percent target set by monetary authorities this year amid rising global food and oil prices.

BSP Governor Amando M. Tetangco Jr. said inflation this year would still range between three percent and five percent.

“The latest baseline inflation forecasts is still within the three percent to five percent target for 2011. Therefore on the basis of the most recent inflation outlook, we are not unduly concerned with inflation,” Tetangco said.

Authorities see inflation averaging 3.6 percent instead of 2.8 percent this year after taking into consideration a possible fare hike including the MRT and LRT as well as the higher toll fees.

He pointed out that the balance of risks to inflation is slightly tilted to the upside because of what is happening to global food prices, oil prices, and the potential for further increases in some monitored prices.

“We note also that inflation expectations – while currently well-behaved – could turn upward should these upside risks materialize,” the BSP chief explained.

Average inflation inched up to 3.8 percent last year from 3.2 percent in 2009 but was well within the target of 3.5 percent to 5.5 percent.

Tetangco earlier said monetary authorities would keep a close watch on inflation this year as the BSP intends to maintain a low-inflation environment to help sustain last year’s strong economic recovery.

He explained that the Philippines need to maintain a low-inflation environment to sustain the stronger-than-expected gross domestic product (GDP) growth of 7.5 percent in the first three quarters of last year from 0.7 percent in the same period in 2009. “The BSP will keep its eye on the inflation ball,” Tetangco said.

The GDP growth registered in the first nine months was faster than the revised GDP growth target of five percent to six percent set by the Cabinet-level Development Budget Coordination Committee (DBCC) for 2010.

The BSP’s Monetary Board was able to keep its key policy rates at record lows for 13 consecutive policy setting meetings due to the benign inflation outlook. -Lawrence Agcaoili (The Philippine Star)