MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) expects a more normal path of inflation starting June as the effect of El Niño weather disturbance and the possible upward adjustment in utility rates start to kick in.
BSP Deputy Governor Diwa Guinigundo said inflation is expected to gradually increase toward the lower end of the two to four percent inflation target set by monetary authorities for 2016 and 2017.
“We believe monthly inflation until I think about the middle of the year will continue to be lower compared to what we saw in 2013 and 2014. Towards the middle of the year, we will expect that it will be closing on the lower end of the target,” he said.
The BSP has lowered its inflation forecast to 2.2 percent from of 2.4 percent this year as risks shifted to the downside due to the continued decline in oil prices in the world market and the lower-than-expected inflation turnout.
“Inflation will remain low probably up to June. Then by June we would expect a more normal path of inflation closer to the target of two to four percent,” he added.
BSP Governor Amando Tetangco Jr. said the risks surrounding the inflation outlook have shifted slightly to the downside.
“Downward pressures on inflation could arise from slower-than-expected global economic activity and potential second-round effects from lower international oil prices, while upside risks could come from the impact of prolonged El Niño dry weather conditions on food prices and utility rates as well as pending petitions for power rate adjustments,” Tetangco said.
Guinigundo said there is a need to further assess the impact of El Niño as typhoons toward the end of 2015 and the start of 2016 added more rainfall and could have softened the effect of the supposed prolonged drought.
He also noted the utility and power rate adjustment could happen anytime further adding to the upside risks.
However, he explained monetary authorities also noted the demand for commodity and even oil would continue to be subdued because the global economy remains soft.
After the roll back in the minimum for jeepneys to P7 from P7.50 in the National Capital Region (NCR), the government has granted similar fare reduction in the provinces.
Guinigundo added the Department of Trade and Industry (DTI) is proposing a downward adjustment in the suggested retail price of certain commodities like bread, canned sardines, milk, coffee, noodles, bottled water, processed meats, condiments, and batteries that account for about 8.5 percent of consumer price index (CPI).