MANILA – Philippine monetary officials called the marginal rise in the country’s inflation rate as “temporary” and does not indicate a turn-around from its downward trajectory in the last six months. This, after the Philippines posted a 3.2 percent inflation rate last month, marginally higher than the 3 percent in April.
Bangko Sentral ng Pilipinas (BSP) governor Benjamin Diokno said this development “cannot be seen as a reversal of the trend” because “one data point does not constitute a trend.”
He pointed out that actual inflation rate last May is within the central bank’s 2.8 to 3.6 percent forecast.
“Looking ahead, we expect inflation to be in the neighborhood of 2.0 percent in the third quarter of 2019. With world oil prices easing, we expect the annual inflation rate to be in the vicinity of 3.0 percent in 2019 and 2020,” he said.
The sustained slowdown of inflation rate in the past months gave the BSP leeway to cut by 25 basis points the central bank’s key policy rates last May 9 after the total of 175 basis points increase in 2018.
Diokno explained that “in economics, initial conditions matter” and that “everyone knows that the 175 basis points increase last year was temporary – a measure to arrest rising inflation and to manage inflation expectation.”
He, thus, stressed that since inflation is normalizing “it is irrational to think that the high policy rate will remain.”
“The correct view is that policy rates cut is inevitable, though the exact timing will be data-dependent and evidenced-based,” he added.
Relatively, BSP deputy governor Diwa Gunigundo said the dry condition affected prices of food items like fish, fruits, and vegetable last May while other contributors are higher utility rates as well as housing.
He pointed out that drivers of the faster inflation rate remain supply side “and therefore generally temporary.”
“The only risk is when the uptick gets prolonged and starts generating second round effects and higher inflationary expectations especially in the face of the heavy catch up on public spending on infrastructure in the second half,” he said.
The central bank official, however, said that “even with this one-month price gain, year to date inflation continues to be within the 2-4 percent inflation target.”
Meanwhile, Guinigundo said the goal to cut further banks’ reserve requirement ratio (RRR) remains.
“But the pace of the reduction will be governed by both data and evidence. So BSP will continue to monitor key developments and indicators to guide the next steps moving forward,” he added. (PNA)
