BSP says inflation may peak at 12% in 4th qtr

Doris Dumlao
Philippine Daily Inquirer

MANILA, Philippines—Inflationary risks from food and fuel prices will remain high and the year-on-year increase in consumer prices will likely peak at slightly over 12 percent in the fourth quarter before tapering off next year, a senior official of the central bank, Bangko Sentral ng Pilipinas (BSP), warned Thursday.

External challenges continue to mount because of uncertainties in global commodity prices, BSP managing director for research Cyd Tuano-Amador said at a news briefing even as she noted that global oil prices had recently shown some slowing down.

“The pass-through from global prices is not yet over, and the global non-oil commodity price hikes appear prolonged and are expected to take longer to unwind,” Amador said.

BSP Deputy Governor Diwa Guinigundo said the consumer price increases would likely ease to single-digit levels at the end of the 2009 first quarter or the beginning of the second quarter.

He said that in the BSP baseline scenario the inflation rate, as measured by the increase in the consumer price index, was unlikely to breach 13 percent this year.

He added that there could be developments abroad that could support a more favorable movement in global oil prices, which have recently fallen to about $120 per barrel after hitting a record $147 a barrel in previous weeks.

“The United States can shift to a monetary tightening policy,” Guinigundo said.

That “would support the US dollar and thus the speculative element could ease in the process,” he said.

Speculation would contribute “several dollars” in the price of crude oil per barrel, and a cut in interest rates by the US Federal Reserve would ease oil prices by several dollars, he said.

And if the global slowdown were to continue, demand for oil would be reduced, Guinigundo added.

BSP officials did not rule out further monetary tightening in the months ahead.

In June and July, the BSP policymaking body, the Monetary Board, increased the overnight borrowing rate by a total of 0.75 percentages point.

Amador said, “Going forward, the Monetary Board is prepared to do whatever is necessary to maintain price stability, the prime mandate of the BSP.”

The BSP expects that the country’s inflation rate this year to exceed the government’s maximum target of 5.0 percent this year and 4.5 percent in 2009.

“While price pressures are projected to ease starting late 2008, given base effects, the pass-through from global oil prices are not yet over,” Amador said. “There have been some increases in the pipeline that have not yet reflected in local pump prices although, of late, oil prices have eased.”

With editing by INQUIRER.net