Aug 202014

MANILA, Philippines – Supply-side factors continue to create upward pressures on inflation, a Bangko Sentral ng Pilipinas official said, noting this would mean the need for a “more vigilant” monetary policy.

BSP Deputy Governor Diwa C. Guinigundo told reporters yesterday there may be some sudden spikes in consumer prices for the rest of the year due to supply-side factors.

 “I think the blips are possible in the coming months because of the uncertainty in the supply-side. You have power adjustment, oil prices, and because of the impact of the weather, as well as port congestion,” Guinigundo said.

Inflation stood at an average rate of 4.3 percent as of July, about the same as the central bank’s 4.33- percent average forecast for the full year. The level is above the midpoint of the government’s three to five percent target for 2013.

Guinigundo said there remains an uncertainty when the adjustment on power rates would take place. The same goes for the weather disturbances and the El Niño phenomenon, which may both have a negative impact on the water supply and on agricultural crops as well.

“So we need to be more vigilant and strengthen the coordination with other government agencies,” Guinigundo said.

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 “We can accommodate the first round effects (of inflation) but we cannot tolerate the second-round effects and that’s why monetary policy will have to be preemptive,” he continued.

The second-round effects pertain to petitions for wage hikes following soaring commodity prices.

 “And if there are signs that some second round effects are already emerging, then we would need to adjust appropriately the magnitude of adjustment and the direction of adjustment,” Guinigundo said.

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