THE continued rise in global commodity prices and more pronounced second-round effects on domestic goods and services will trigger more price increases of local commodities ahead, the Bangko Sentral ng Pilipinas (BSP) said on Tuesday, after inflation shot up above 6 percent in June.
Following the Philippine Statistics Authority (PSA) announcement of a 6.1 percent inflation rate in June, BSP said inflation is projected to “remain elevated” over the coming months.
“The balance of risks to the inflation outlook is likewise skewed to the upside for 2022 and 2023, with pressures emanating from the potential impact of higher global non-oil prices, the continued shortage in domestic fish supply, and pending petitions for transport fare hikes due to elevated oil prices,” the BSP statement said.
Economists at the Bank of the Philippine Islands (BPI) echoed the sentiment, saying inflation has probably not peaked yet in June and may continue to go up until October assuming oil prices will stay at current levels.
“The contribution of food to inflation will likely expand further in the coming months given the shortage of certain items in the international market amid the conflict in Ukraine and the trade restrictions being put in place by exporting countries like India and Indonesia,” BPI said.
“The contribution of transport to inflation will also likely expand in the coming months because of the recently approved fare hike for jeepneys. With road transport services accounting for 4.29 percent of the consumer basket, we expect a 0.2-percent increase in the upcoming inflation prints as a result of the 2 Peso hike in jeepney fares,” the bank added.
Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort also said new taxes, which are being proposed for the government’s fiscal consolidation plan, could likely fuel higher inflation in the coming months.
“The proposed higher taxes or new taxes for the coming months could potentially lead to some pick up in prices and overall inflation, as an unintended consequence, as part of the efforts to narrow the country’s budget deficit,” Ricafort said.
The acceleration of inflation in June is also set to trigger a more aggressive tightening path from the BSP, according to ING Bank economist Nicholas Mapa.
“July inflation will likely push above 6 percent again and we believe this will be enough to convince BSP to whip out a more forceful 50 basis point rate adjustment
at their August policy meeting. We expect BSP’s policy rate to end the year at 3.5 percent or higher,” Mapa said.
BPI economists also said a more aggressive adjustment to the current path may be helpful for the economy.
“Hiking the policy rate by 50 basis points now rather than later may help in mitigating the risk of bigger hikes in the future that could cause more volatility in the markets,” the bank said.
In its statement, the BSP said it is “prepared to undertake necessary policy actions to bring inflation back to a target-consistent path over the medium term and deliver on its primary mandate of price stability.”
“The upward adjustment in monetary policy rates in May and June should help temper inflation expectations. At the same time, the BSP reiterates its support for the carefully coordinated efforts of other government agencies in implementing non-monetary interventions to mitigate the impact of persistent supply-side factors on inflation,” the BSP said.
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