Prices of goods, services to stabilize next year, BSP vows

by Daxim L. Lucas, Inquirer, Mar 23, 2018

Despite all the talk of increasing prices of goods and services — and the actual headline inflation rates having risen these above expectations these last two months — the central bank yesterday said it expects the situation to normalize by next year.

At the same time, the Bangko Sentral ng Pilipinas adjusted upward its inflation rate forecast for 2018, but moved down slightly its projection for 2019.

In a press briefing, BSP Deputy Governor Diwa Guinigundo said monetary planners expect the prices of goods and services in the local economy to rise by an average of 3.9 percent for all of this year, which represents a slight upward adjustment from the old forecast of 3.8 percent, using 2012 as a base year for prices.

Using the older 2006 base year, the inflation for 2018 is expected to rise to 4.5 percent from the old forecast of 4.3 percent, Guinigundo said.

Despite this, the central bank believes that the acceleration of price increases are “transitory” in nature, and caused by, among others, the increase in the international prices of crude oil, rising prices of rice and other basic goods and services.

Previously central bank statements had also cited the Duterte administration’s tax hikes, that went into effect this year, on the prices of basic commodities.

The central bank said, however, that prices should stabilize on their own by 2019 even without any help from the Monetary Board, which yesterday decided to keep its key interest rate unchanged — a tool used mainly to counter inflationary effects by making funds more expensive and, in turn, capping inflation by reining in economic growth.

For next year, Guinigundo said the central bank expects the inflation rate to actually decline slightly to 3 percent from the old forecast of 3.1 percent under the 2012 base year scheme. Using the older 2006 base year to tabulate prices, BSP expects the 2019 inflation rate to remain unchanged at 3.5 percent.

“This is well within the 2-4 percent target range for both years,” BSP Gov. Nestor Espenilla Jr. said, justifying the central bank’s decision to refrain from hiking interest rates amid the higher inflation of the last couple of months.

He said BSP economists “don’t see the propagation of inflationary pressures that could threaten our projected path for 2019 of inflation returning to within-target levels.”

Guinigundo added that they have not seen strong evidence of second-round effects on prices of the tax hikes that came into effect last January.

“So far, we have not seen a widespread petition for higher wages and transport fares,” he added. /muf