BSP sees May inflation as high as 5.1%

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) sees inflation this month hitting as high as 5.1 percent due to Europe’s debt crisis as well as the growing tension between North and South Korea, BSP Governor Amando M. Tetangco Jr. told reporters yesterday.

Tetangco said inflation for May is expected to come in between 4.2 percent to 5.1 percent from 4.4 percent in April.

This would be the first time in more than one year that inflation would be above five percent after inflation averaged 6.4 percent in March last year.

“May 2010 inflation is forecast to tip within the band of 4.2 percent to 5.1 percent. This forecast range still indicates a within target full-year average inflation rate for 2010,” he stressed.

The BSP has set an inflation target of 3.5 percent to 5.5 percent this year from 3.2 percent last year. Monetary authorities, however, raised its inflation forecast to 5.1 percent instead of 4.64 percent this year after factoring in a possible wage increase and fare hike in May.

Latest data from the National Statistics Office (NSO) showed that average inflation eased to 4.3 percent in the first four months of the year from 6.4 percent in the same period last year. Headline inflation was steady at 4.4 percent in April from 4.4 percent in March.

Based on the latest assessment of the BSP during their meeting last April 22, monetary authorities expect inflation to hit a high of six percent either in June or July due to a possible wage increase, fare hike, and rising pump prices of petroleum products.

Tetangco said monetary authorities would carefully assess the impact of the developments in Europe and Korea on the domestic demand and whether these factors would result in price action in the local markets.

“Nevertheless we are watchful of developments in the other markets including Europe and Korea particularly shifts in investor sentiment and their impact on the movements of international commodity prices and exchange rates in the major economies,” he added.

According to him, these factors would be closely considered during the policy meeting of the central bank’s Monetary Board scheduled on June 3.

“This will be part of our deliberation during our policy meeting next week,” the BSP chief said.

The Monetary Board slashed its key policy rates by 200 basis points between December of 2008 and July of 2009 and at the same time introduced several liquidity enhancing measures since November of 2008 to cushion the impact of the global economic meltdown.

The BSP has kept its overnight borrowing rate at a record low of four percent and its overnight lending rate at six percent for seven consecutive policy-setting meetings since July last year.