BSP projects lower inflation in June

The Bangko Sentral ng Pilipinas (BSP) is expecting inflation to ease between 4.2 percent to 4.6 percent in June from 4.7 percent in May despite the pressures from the resumption of classes and the transport fare hikes.

BSP Governor Rafael B. Buenaventura told reporters yesterday that headline inflation was still benign enough that there would be no need for the Monetary Board to touch policy rates.

According to Buenaventura, the projected range for the June inflation would bring the year-to-date average to four percent which was still on the low-end of the four to five percent average headline inflation expected for the whole of 2004.

Buenaventura said monetary policies are likely to stay where they are as long as the inflation rate stayed benign especially since the approved increase in minimum wages was below the P22 supported by the BSP.

The BSP earlier said that beyond the P22 level, the increase in the daily minimum wage would have an impact on the national average inflation especially when combined with the approved increase in transport fares and utility charges.

The BSP said the uptick in the headline inflation in May was mainly due to higher prices of food items, particularly, meat, fruits, vegetables, daily products and cooking oil which exerted the most pressure on headline inflation.

The BSP noted that the uptrend in inflation in recent months was driven mainly by supply-side factors such as the rise in the prices of food products, increase in the domestic pump prices of gasoline and other oil products and the adjustments in transport fares.

The impact of these supply-side factors, however, was expected to be transitory, Buenaventura said.

"They don’t appear to represent a permanent shift in the long-run price path," he said. "These risks are for the most part, outside the influence of monetary policy."

In addition, Buenaventura said the potential supply-oriented price pressures are likely to be tempered by continued presence of spare capacity in the manufacturing sector and soft labor market conditions. The pending petitions for wage adjustments could also raise inflation expectations.

Buenaventura said the timely importation of food products such as chicken and corn could help ease the pressures on food prices.

"Given these developments, the BSP will continue to monitor closely the evolving economic and financial developments as well as assess their impact on the long-run price path," he said. "The stance of monetary policy will continue to emphasize caution in line with the need to provide support to economic activity and ensure sustainable growth while maintaining price stability."