Keeping inflation at bay could be tricky

PHILIPPINES - In Brief 08 Feb 2025 by Diwa Guinigundo

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Last January 30, 2025, the media bannered that inflation may likely fall within the target of 2-4% for the next two years. This was based on the latest BSP survey of external forecasters as contained in its latest Monetary Policy Report. Mean inflation rate was quoted at 3.1% against the central bank’s risk-adjusted inflation forecast of 3.4% for 2025 and 3.7% for 2026. That disparity derives from the fact that the forecasters submitted only their baseline scenarios which exclude the risk of elevated global oil prices beyond $90 per barrel and the second-round effects on transport fares, food prices and wage adjustments. Based on the numbers alone, it would be risky for the BSP to be too aggressive in its easing policy. It is correct though for monetary authority to have declared that monetary policy remains in the restrictive territory. But what is happening is hardly the best moment for impassioned monetary policy. The private economists themselves did recognize the risk coming from possible supply disruptions due to geopolitical hostilities and weather disturbances. Power rates could also rise due to the increase in generation charges which may be passed on to final users. A food security emergency was declared by the Department of Agriculture last week based on the recommendation of the National Price Coordinating Council because of the “extraordinary” rise in local rice prices. Rice alone accounts for nearly 9% of the consumer price index. Despite the various initiatives including the implementation of lower rice tariffs and subsidized rice prices at various government retail centers, rice prices remained seriously elevated. Government officials blamed hoarders an...