BSP's Medalla: Inflation to peak in September, October

Ramon Royandoyan - Philstar.com
BSP's Medalla: Inflation to peak in September, October
A man buys vegetables from a street stall in Quiapo, Manila on July 5, 2022
Jam Sta Rosa / AFP

MANILA, Philippines — Bangko Sentral ng Pilipinas Governor Felipe Medalla is optimistic that inflation will peak by September or October as markets everywhere will start pricing in recession concerns. 

Speaking in a Friday briefing organized by the Management Association of the Philippines, Medalla made the case for his rosy outlook. As it is, inflation expanded 6.4% year-on-year in July as prices of consumer goods and services shoulder the burden of expensive fuel prices and a weak peso. 

“Inflation peak will come in September, October. Global prices will start to fall partly because people will start expecting US recession,” he said. 

So far, inflation is averaging 4.7% since the start of the year. 

The national government has grown wary of the pass-through effects of inflation. This meant that inflation could soon compel sectors of the domestic economy to start raising prices to keep pace with tighter conditions.

The BSP revised their inflation forecasts this year, as full-year average is expected to breach the upper end of the government-projected 2-4% target at 5.4%. 

Sought for comment, Nicholas Antonio Mapa, senior economist at ING Bank in Manila, projected that inflation would peak in October.

“The first half of the year we were hit by the first round of inflation: mostly in imported energy and food inflation. The second half we will be hit by second-round effects: wage and transport fare adjustments plus retailers raising prices as inflation expectations rise,” he said in a Viber message. 

Expensive fuel prices, Russia’s invasion of Ukraine, and a strong greenback worsened global supply chain pressures in the past months. 

Domini Velasquez, chief economist at China Banking Corp. agreed with Medalla's outlook, noting how China figures largely in the inflation picture.

"...the decline in global oil prices due to recessionary fears in advanced economies as well as China’s strict zero-Covid policy will largely contribute to the inflation slowdown. The effect of BSP’s monetary tightening may also start to bite more into consumer demand and the overall price level by the end of the year," she said in a Viber message.

The US economy is widely expected to fall into a recession after the US Fed aggressively hiked interest rates in past months to cool down an overheating economy. 

For its part, the BSP tightened its key policy rate by 50 basis points yesterday, now at 3.75%. The central bank has hiked its key rate by a total of 175 basis points since the start of its monetary policy normalization in May.

Despite the BSP’s hawkish stance, the BSP has oft-repeated that successive rate hikes will not impede the country’s economic recovery from the pandemic. The national government is looking to recover lost economic ground by reopening the economy earlier this year to facilitate growth. 

The Marcos Jr. administration is likewise bullish the economy could grow by 6.5-7.5% this year amid global headwinds that could impede domestic economic growth. 

“Global commodity prices may fall (they have already) unfortunately the second half of the inflation tempest in the Philippines is just about to hit as second round effects kick in,” Mapa said.



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