THE effects of the Russia-Ukraine war on the local prices of goods will be among the factors to be considered in crafting monetary policy on Thursday (May 19), as it could potentially “disanchor” inflationary expectations in the country, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said on Wednesday.
The BSP chief said they continue to closely monitor the Ukraine-Russia conflict and that they “remain vigilant against its impact on the Philippines’s inflation outlook.”
Diokno added: “While spillovers from the Ukraine-Russia conflict will likely be limited given our lack of close economic linkage with the two countries, its impact through the commodities channel could pose upside risks to domestic inflation.” The governor also said they support the timely implementation of direct non-monetary measures by the national government in order to mitigate the impact of the ongoing conflict.
“The main channel through which the conflict affects the Philippines is through higher commo-dity prices, which pose upside risks to domestic inflation,” Diokno said.
Recent data on inflation showed an uptick in the consumer price index (CPI) by 4.9 percent in April—the highest acceleration in three years.
Broken down, a significant chunk of the acceleration came from transport inflation which went up by 13 percent, as fuel prices surged during the month.
“With energy and transport-related items directly accounting for about 14 percent of the Consumer Price Index or CPI basket, a sustained increase in domestic oil prices may result in a disanchoring of inflation expectations,” the governor said.
“This could lead to second-round effects on transport fares, food prices, and higher-than-expected wage adjustments, and further dampen domestic demand,” he added.
Diokno said they are particularly watching prices on jeepney fares and food inflation as potential channels of these so-called “second-round effects” from the crisis in Russia and Ukraine.
“First, higher jeepney fares are a potential source of second-round effects from higher oil prices. Various transport groups have filed for a nationwide increase in the minimum jeepney fare to the Land Transportation Franchising and Regulatory Board ranging from P1.00 to P6.00,” Diokno said.
“Second, food prices could also accelerate if the higher transport costs are passed on to consumers. Food items account for 34.8 percent of the CPI basket while restaurants and accommodation services are 9.6 percent of the basket,” he added.
Diokno said while they support the use of effective and timely “non-monetary policy” measures to combat supply side pressures such as these, they continue to “stand ready” to act should it see “any sign” of inflation expectations becoming disanchored.