Higher wage hike to fan inflation

Published by rudy Date posted on May 4, 2011

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) yesterday warned that an across-the-board daily wage increase exceeding P25 per day could fan inflation leaving the central bank with no option but to further tighten its monetary policy stance to rein in inflation.

BSP Governor Amando M. Tetangco Jr. said in an interview with reporters that the central bank assumed a P25 increase in daily wages in its latest inflation forecast.

“In our [inflation] forecast, we used an [wage hike] assumption of P25, which is a 6.2-percent increase. If actual wage hike is bigger than that, that will have additional inflation implications,” Tetangco warned.

The wage board for workers in the National Capital Region (NCR) is set to announce next week its decision on petitions for wage increase. Various groups are clamoring for an across-the-board increase of between P25 and P75 per day.

Last June, the wage board approved a P22 increase in the daily minimum wage for workers in NCR to P404 per day from P382 per day.

Tetangco earlier said the central bank’s policy setting body would refresh its inflation forecast for the year tomorrow, May 5, to determine whether there is a need to further change its monetary policy stance in light of the escalating prices of global oil and food prices and its possible second round effects.

“We have to refresh our inflation forecast to see if there is a need to change our policy stance,” Tetangco earlier said.

The National Statistics Office (NSO) is also scheduled to release the inflation figure for the month of April tomorrow.

The BSP chief sees inflation last month as well behaved saying it would range between 3.7 percent to 4.7 percent or well within the full year target of three percent to five percent despite the escalating prices of oil and food in the world market.

Last March 24, monetary authorities raised its full year inflation forecast to near the higher end of the target of five percent instead of 4.4 percent but lowered its inflation forecast for next year to 3.4 percent instead of 3.5 percent.

The continued build up in inflation pressures prompted the BSP to jack up interest rates by 25 basis points last March 24 after keeping its policy stance unchanged for 20 straight months dating back to July 2009. This brought the overnight borrowing rate to 4.25 percent and the overnight lending rate to 6.25 percent.

The interest rate hike, according to the BSP, was a preemptive move to keep inflation expectations well anchored amid the surging oil and food prices in the world market. –Lawrence Agcaoili (The Philippine Star)

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