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October 01, 2023

Oil averaging more than $95 a barrel will cause inflation to overshoot

Inflation averaging no more than the target 4-percent ceiling this year will likely be breached should the price of crude oil in the global market push past $95 per barrel.

This was bared Thursday by Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno when he announced the recalibrated forecast inflation to 4.3 percent this year and to 3.6 percent next year.

The forecast inflation when the BSP’s Monetary Board (MB) met on February 17 was set at only 3.7 percent this year and 3.3 percent for next year.

“The BSP simulation continues to indicate a potential inflation target breach if crude oil prices average higher than $95 per barrel for 2022 and 2023,” Diokno said.

Prior to this development, the BSP forecast continued economic expansion and price stability in the country on the assumption that the price of Dubai crude would average no more than $83.33 per barrel this year and only $75.69 per barrel next year.

These assumptions incorporated at the MB meeting on February 7 have been discarded and replaced by a higher average price of $102.23 per barrel this year and $88.21 per barrel next year.

Under the law, the BSP is required to explain in an open letter to Malacanang why its inflation target had been breached, just as it did for 10 times since its establishment in 1993.

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