Monetary officials see prices moderating late this year
Des Ferriols
Philippine Star
Monetary officials said demand pressures are beginning to show up in global markets but domestic prices could start to moderate late this year and early 2009.
The optimism, however, is being tempered by uncertainties over the extent of adjustments in wage and transport fares as well as utility rates that could have longer lasting monetary implications.
The Bangko Sentral ng Pilipinas (BSP) said yesterday that although it had factored in a seven-percent average increase in the minimum wage this year, anything beyond this level would dramatically alter macro-economic projections.
BSP Deputy Governor Diwa Guinigundo said the central bank has already made adjustments in its basic assumptions for 2008 including a higher path for Dubai crude oil prices, the slight depreciation of the peso, lower overnight rates and lower Treasury bill rates.
However, Guinigundo said the recalculation of the 2008 projections would also depend on the magnitude of adjustments in wages and transport fares which have become necessary because of the rampaging increase in world oil prices.
“The risks to inflation remain on the upside such as the volatility of oil prices and the uptrend in the global prices of food commodities,” Guinigundo said. “But there is also a downside such as the modest growth in liquidity and possible downside of the global economy and the slowdown in domestic demand.”
However, Guinigundo said the situation was not unique to the Philippines saying that prices could return to manageable levels over the policy horizon starting late 2008 and early 2009.
“The inflation target will be exceeded but we have to firm up our preliminary 2008 estimates,” he said. “We can not give specific range, though.”
Guinigundo said that while the BSP has already assumed some degree of adjustment in wages and transport fares, there was nothing definite in how the actual adjustments would be made.
Guinigundo said the BSP assumed a seven percent adjustment in wages and a 50-centavo adjustment in transport fares but there were various petitions for larger adjustments pending in various regulatory agencies.
“We have no idea of how the actual adjustments would actually come out,” he said.
But Guinigundo insisted that even second-round effects start to creep in, the BSP still had a “good scope” for addressing demand-side inflation concerns.
With core inflation also starting to go up, Guinigundo cautioned that economic planners would have to reconsider their numbers should wage and transport fare adjustments go beyond the assumptions.
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