Policy Rate Hike?

PHILIPPINES - In Brief 17 Jun 2014 by Romeo Bernardo

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These days, reports of price increases from rice, sugar and garlic to oil and transport fares have become daily fare in the local newspapers. Receiving the most attention is the nation’s staple food and CPI heavyweight, rice, which has been the target of government’s anti-smuggling efforts and where imports by the state have yet to arrive. The price of regular milled rice rose another P2/kilo this month, continuing its steady climb from the low P30s this time last year to P40 in the latest government price monitor. As well, after a brief price rollback, local oil companies are increasing pump prices anew reflecting higher world crude prices following the Iraq crisis. Unlike in other countries, world oil prices are completely passed through to consumers locally. GRAPH 1 Inflation and Rice Prices Source: NSO, BAS As well, risks to inflation seem to be on the rise. For one, potential disruptions to crop production due to El Nino weather disturbance are in the cards, albeit mitigating measures (e.g., drought-resistant varieties) are being pursued. There is also added pressure from logistics costs due to additional port fees and trucking charges as piled-up cargoes in the port of Manila are slowly moved out following the compromise reached between the national and local governments on the latter’s truck ban. With inflation recorded at 4.5% last month, higher than most forecasts, the more immediate question seems to be, will the BSP raise policy rates on Thursday? Analysts who think a rate increase imminent take their cue from the BSP Governor’s statement of “narrowing” room to keep policy rates steady. They believe that while 2014 inflation will fall within authorities’ 3-5...