Despite sharp rise in commodity prices due to port congestion

Inflation expected to remain within target

MANILA, Philippines – While commodity prices are rising due in large part to congestion in roads and key ports in Metro Manila, the Bangko Sentral ng Pilipinas said the full-year average inflation will remain within the government’s target.

“Our view is that within the policy horizon, inflation would likely stay within the target range,” BSP Governor Amando M. Tetangco Jr. told reporters yesterday.

“There could be blips up and down but overall, we believe the average will still be within the inflation target,” Tetangco said.

Inflation rose to 4.9 percent in July, a 33-month high, on the back of soaring food prices and increases in utility rates and transportation fares.

In the seven months to July, the rate has averaged 4.3 percent, about the same as the BSP’s forecast average of 4.33 percent for the whole year. This is above the midpoint of the government’s three to five percent target for 2014.

The BSP expects inflation to average 3.72 percent next year, near the upper end of the two to four percent target range.

Analysts said food prices may climb higher following the truck ban and the resulting congestion in key ports in Metro Manila as the scenario causes delay in the delivery of goods.

“There’s going to be a delay so there’s a temporary tightness in supply. If there’s tightness (in supply) there’s some effect on prices,” Tetangco said.

He stressed however “it’s hard to quantify what is the extent of the impact.”

During the BSP’s most recent rate-setting meeting, Tetangco pointed out risks to inflation continue to be leaning toward the upside. Inflation pressures come from the rising food prices, volatility in international oil prices, and pending adjustments in power rates and transport fares, he added.

The central bank last July 31 raised key policy rates by 25 basis points each to ensure inflation will remain within target especially for next year, when the band narrows to two to four percent from three to five percent.

Tetangco then said the BSP will remain “vigilant” against risks to inflation as it stands ready to deploy any of its monetary tools as necessary. –Kathleen A. Martin (The Philippine Star)