BSP forecasts 2.8-3.6% May inflation » Manila Bulletin Business

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BSP forecasts 2.8-3.6% May inflation

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By Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) thinks inflation for the month of May could be as low as 2.8 percent from April’s actual three percent rate, but price pressures from transport fare hikes could still pull inflation up to as much as 3.6 percent.

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“Upside price pressures could emanate from the jeepney fare adjustment in Central Visayas and higher prices of selected food items,” according to the BSP Department of Economic Research. Base effects could allow for inflation to stay at three percent.

“(The) positive base effects could account for temporary price pressures in May,” said the BSP.

The central bank also said decreased inflation in May of below three percent could still be possible with lower rice and domestic oil prices, as well as lower electricity rates. These three factors might “temper” May inflation.

The BSP said it will “continue to be watchful of evolving price trends to ensure that the monetary policy stance remains consistent with maintaining price stability.”

As of end-April, the year-to-date average inflation dropped further to 3.6 percent, which BSP Deputy Governor Diwa C. Guinigundo is a number firmly within the two-four percent target range for 2019.

The latest data also gives the central bank more confidence that inflation will settle back to the three percent level in the third quarter.

The upside risks that BSP are cautious about continue to be the increase in global crude oil prices and possibility of a prolonged El Niño episode. Another source of price pressures is the softened global economic environment.

Inflation has been on a decline since it reached peaks of 6.7 percent in September and October 2018. At the end of last year, inflation averaged at 5.2 percent, a significant increase from 2017’s 2.9 percent, and exceeded the two-four percent target band.

Since January, inflation has come down from 4.4 percent to three percent in April, and this convinced the Monetary Board it was time to start normalizing monetary policy which it did on May 9 when it cut key rates by 25 basis points (bps).

A week later, the Monetary Board also decided to reduce reserve requirement ratio by 200 bps for big banks, another 200 bps for thrift banks, and 100 bps for rural/cooperative banks.

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