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BSP fears inflation to surge to 7% in April

05/01/2008

The Bangko Sentral ng Pilipinas (BSP) expressed worries yesterday that the inflation rate in April may climb to as high as 7 percent, which would be the highest in two years.

BSP Gov. Amando Tetangco told reporters that inflation in April is expected to range between 6.4 and 7 percent.

Tetangco added outlook on inflation the rest of the year is “clouded with risks.”

The inflation rate has stayed within the BSP’s 3 percent to 5-percent target since February before hitting a 21-month high of 6.4 percent in March. The inflation rate in January was at 4.9 percent.

“Monetary policy will remain vigilant for any early sign of second-round effects and possible dis-anchoring of inflation expectations,” Tetangco said.

The forecast took into account higher oil and non-oil commodity prices for the period marked by domestic, as well as global rice supply stresses and the impact of the power rate adjustment.

“With the continued increase in oil and non-oil commodity prices, we expect April inflation to average from 6.4 percent to 7 percent,” Tetangco said.

The National Statistics Office is due to release the official inflation rate for the month by next week.

Tetangco also said the power rate adjustment during the month was similarly seen to impact on headline inflation. HSBC economist Frederic Neumann expects inflation to average around 8 percent.

Tetangco vowed to maintain monetary policy to remain “vigilant for any early sign of second round effects and possible disanchoring of inflation expectations.”

Year-to-date inflation already averaged 5.57 percent based on official government data.

Tetangco, nevertheless, remained optimistic that next year’s inflation goal was still within reach.

“The 2008 inflation outlook is clouded with risks but the 2009 target of 3.5 percent plus or minus one percentage point is achievable,” Tetangco said.

Under the inflation targeting framework embraced by the BSP since January 2000, it is required to set an inflation goal for which it must explain to the President and to the nation as a whole in the event that its target it breached.

The BSP managed to tame inflation inflation last year averaging only 2.8 percent but had to write an open letter to President Arroyo in 2006 when inflation averaged above target to 6.2 percent instead.