Philippine central bank Governor Benjamin Diokno sees inflation breaching the government’s two to four percent target starting the second half of the year until the first quarter of next year due to higher global oil and non-oil prices as well as positive base effects.
“Subsequently, inflation is projected to decelerate back to within the target in Q1 2023 before steadily decelerating the remaining quarters of 2023 as oil and non-oil prices are expected to taper off,” Diokno said in a virtual press briefing.
In the first quarter of the year, inflation averaged 3.4 percent after accelerating to a six-month high of four percent in March from three percent in February as rising global crude oil prices brought about by the ongoing Russia-Ukraine conflict continues to contribute to the increase in energy related prices.
“However, at present, we have not seen clear signs of second round effects in terms of actual changes in transport fares or wages,” Diokno said.
In its assessment last March 24, the Monetary Board raised its inflation forecasts to 4.3 instead of 3.7 percent for 2022 and to 3.6 instead of 3.3 percent for 2023 after raising its Dubai crude oil price assumptions to $102.23 per barrel instead of $83.33 per barrel for this year and to $88.21 per barrel instead of $75.69 per barrel for next year.
After slashing interest rates by 200 basis points in 2020, it has kept the benchmark rate at an all-time low of two percent since November 2020 as part of its COVID-19 response measures.
“Nonetheless, the decision to keep the policy rate at its current level during the last policy meeting was deemed appropriate given the increased uncertainty surrounding the outlook for both inflation and growth,” Diokno said.
According to the BSP chief, authorities are aware that inflation is likely to remain elevated in the coming months due mainly to domestic and global supply side pressures.