BSP sees slight uptick in inflation in coming months

MANILA, Philippines – Monetary authorities see a slight uptick in inflation over the next few months in light of the wage increase approved recently by the regional wage board as well as higher commodity prices but will still be within the target range set by the Bangko Sentral ng Pilipinas (BSP).

BSP Deputy Governor Diwa Guinigundo said in an interview with reporters that inflation would also fall within the revised inflation forecast of 4.7 percent despite the decision of the Cabinet-level Development Budget Coordination Committee (DBCC) to revise its economic growth targets due to the stronger-than-expected gross domestic product (GDP) growth in the first quarter of the year.

“There will be some uptrends in inflation rate for the next few months but that is something that we expect and is consistent with our more optimistic and more benign projection for the whole year for 2010 and 2011,” Guinigundo stressed.

The central bank’s Monetary Board slashed its inflation forecast last June 3 to 4.7 percent instead of 5.1 percent this year and to 3.6 percent instead of 3.7 percent for next year in light of lower power and water rates, a strong peso, stable commodity prices, among others. The BSP has set an inflation target of 3.5 percent to 5.5 percent this year and three percent to five percent for next year.

He explained that the uptick would be triggerred by the P22 per day increase in wages approved by the wage board and an increase in power generation charges, among others.

The country’s GDP surged by 7.3 percent in the first quarter of the year from 0.5 percent in the same quarter last year. The Philippines barely escaped recession last year as the GDP expanded by 0.9 percent last year from 3.8 percent in 2008.

“The six-percent growth is even lower than the 7.3-percent growth in the first quarter but did we have any pick up in inflation? We still have excess capacity, we can make use of infrastructure and social spending in the Philippines so any additional generation of output will not necessarily be inflationary,” Guinigundo pointed out.

The BSP official added that there have been structural reforms and structural improvements in the economy that would enable it to accommodate higher economic growth without fuelling inflation.

Furthermore, he said that a benign inflation outlook would also give monetary authorities more flexibility to keep its key policy rates at record lows despite the stronger-than-expected growth in the first quarter as well as the debt crisis in Europe.

“As long as inflation outlook and expectations continue to be favorable, we will have flexibility to keep the rates steady. However, if the upside risks start to act up then we will have to review our monetary policy stance,” he said. –Lawrence Agcaoili (The Philippine Star)