Consumer prices expected to rise faster amid Russia-Ukraine conflict - BSP

The ongoing conflict between Russia and Ukraine is expected to hike global and domestic crude prices even higher, pushing inflation forecasts above the government’s target range of 2% to 4%, the Bangko Sentral ng Pilipinas (BSP) announced Thursday.

Officials of the BSP said inflation is now expected to average 4.3% in 2022, higher than the 3.7% outlook during the Monetary Board policy meeting in February.

The inflation outlook for 2023 was also hiked to 3.6% from the 3.3% projected last month.

“Latest baseline forecasts have increased from the previous monetary policy meeting, reflecting the impact of higher global commodity commodity prices,” BSP Governor Benjamin Diokno said at a virtual briefing.

“Inflation expectations have likewise risen but continue to be anchored to the 2% to 4% target band,” he said.

Diokno explained that the higher inflation expectations come as analysis suggests that the ongoing conflict between Russia and Ukraine is likely to affect the Philippine economy through high commodity prices.

Russia and Ukraine are major exporters of key commodities such as oil, wheat, aluminum, natural gas, and fertilizer.

BSP Deputy Governor for the Monetary and Economics Sector Francisco Dakila Jr. attributed the higher inflation outlook to the sharp increase in global oil and non-oil prices.

Domestic pump prices have been hiked in 11 of the past 12 weeks. Firms on Tuesday implemented a rollback, but this was not enough to offset the successive hikes, as these are lower than increases implemented in the past week alone.

“Sustained increases in domestic oil prices may result in a disanchoring of inflation expectations which could lead to second round effects and further dampen domestic demand,” Diokno said.

The Monetary Board of the BSP on Thursday decided to keep rates at record lows for the 11th straight meeting—the overnight reverse repurchase facility at 2.0%, the overnight deposit facility at 1.5%, and the overnight lending facility at 2.5%.

Diokno said that in the current situation, the BSP believes that it would still be best to address inflation through non-monetary measures, but it is ready to act should it see stronger indications of second round effects.

In terms of the reserve requirement, the governor said it is still part of the agenda and could come in the second half of the year.

“Given the potential broadening of price pressures over the near term, the BSP stands ready to respond to the buildup in inflation pressures that can disanchor inflation expectations, in keeping with its price and financial stability objectives,” Diokno said. — VBL, GMA News