Public policy anchors inflation and growth

PHILIPPINES - In Brief 06 Nov 2023 by Diwa Guinigundo

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What macro data are to be released? The Philippine Statistics Authority is scheduled to release the actual October 2023 inflation, both headline and core, tomorrow November 7. As we write this In Brief in Rome, we are guided by the BSP’s own press statement last October 26 after its off-cycle meeting on monetary policy. The country’s monetary authority decided to increase its policy rate by a symbolic 25 bps hike. It did not have the benefit of knowing the October inflation and the real GDP for the 3rd quarter to be released a day after tomorrow, November 8. Inflation: Will it keep raging? BSP Governor Eli Remolona admitted in the press conference after the meeting, based on the report of the Philippine News Agency, that he believed the Monetary Board should have adjusted rates sooner. “I think we fell a little bit behind. That’s the reason for this effort to catch up. I don’t know if the rest of the Monetary Board agrees with that. We didn’t look closely enough at expectations.” The BSP was referring to the results of the Consumer Expectations Survey that show that more than 90% of consumer respondents expected that inflation will be above 4% in the next 12 months. This expectation was also shared by business respondents. The BSP was correct in pointing that out. Monetary action per se would not bring down inflation directly. Instead, monetary policy could break the link between those supply-side shocks that have been behind the persistently elevated inflation and secondary effects including the consequent adjustments in transport fare, wages and utilities. A cautious monetary policy is necessary when upside risks to the inflation outlook are more dominant. The BSP ad...