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Above-target inflation seen in coming months

Lawrence Agcaoili - The Philippine Star
Above-target inflation seen in coming months
Inflation in the Philippines accelerated to a six-month high of four percent in March from three percent in February, bringing the average to 3.4 percent in the first quarter of the year.
KrizJohn Rosales

MANILA, Philippines — Inflation in the Philippines is likely to stay above the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP), according to the research unit of Australia and New Zealand Bank.

Krystal Tan, economist at ANZ Research, said there was a broad-based pick-up in inflation due to the impact of the Russian invasion of Ukraine.

“The Philippines is expected to join Thailand and South Korea in recording above-target inflation in the coming months, given the combination of high energy prices, economic reopening and relatively more modest policy interventions to cap inflation,” Tan said.

Inflation in the Philippines accelerated to a six-month high of four percent in March from three percent in February, bringing the average to 3.4 percent in the first quarter of the year.

“The jump was the sharpest in the Philippines, which saw inflation rise from three percent year-on-year in February to four percent, the upper limit of the central bank’s two to four percent target,” Tan said.

In terms of the deviation from its five-year average and its inflation target, ANZ said it was Thailand that recorded the biggest rise.

According to ANZ, the big picture is that inflation is becoming more challenging for the region’s central banks, after being a non-issue in recent years.

Tan said  transport inflation hit double-digits in the Philippines, South Korea, and Thailand given the surge in the global energy prices, while food inflation in the Philippines and Indonesia saw a pick up.

“Looking ahead, inflation is expected to remain elevated at least in the near term amid high global energy prices,” Tan said.

Based on its latest assessment, the BSP sees inflation accelerating faster to  4.3 instead of 3.7 percent for 2022 and 3.6 instead of 3.3 percent for 2023.

Amid soaring global oil prices,  the BSP sees  inflation  breaching  the target and average 4.4 percent if Dubai crude oil rises to $120 per barrel and 4.7 percent if it hits $140 per barrel.

The Monetary Board also raised its Dubai crude oil price assumptions to $102.23 instead of $83.33 per barrel for this year and to $88.21 instead of $75.69 per barrel for next year.

The BSP has kept interest rates at record lows for 11 straight rate-setting meetings or since November 2020 to help spur economic recovery.

BSP Governor Benjamin Diokno said monetary authorities are likely to keep interest rates  in the first half of the year before starting the normalization process in the second half.

Diokno said accelerating inflation could prompt the BSP to raise interest rates by as much as 75 basis points by next year.

BSP

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