As inflation soared to 6.4 percent in August, experts from economic research and analysis firm IHS Markit say further tightening of monetary policy is to be expected and that such moves will also tame the country’s economic growth.
“With August CPI (consumer price index) inflation soaring well above market expectations as well as being considerably above the BSP’s (Bangko Sentral ng Pilipinas) own estimate, another policy rate hike at the BSP’s September Monetary Board meeting is looming,” IHS Markit Chief Economist for Asia Pacific Rajiv Biswas said in an e-mail.
“The impact of BSP monetary policy tightening during 2018 will be a drag on GDP (gross domestic product) growth in 2019, as monetary policy acts with long lags of up to 12 months,” Biswas pointed out.
Philippine Statistics Authority (PSA) data showed Wednesday that the 6.4-percent inflation in August 2018 was due to faster increase in prices of commodity groups led by alcoholic beverages and tobacco at 21.5 percent. This is followed by food and non-alcoholic beverages at 8.5 percent; health and restaurant and miscellaneous goods and services at 4 percent; furnishing, household equipment and routine maintenance of the house at 3.5 percent; and recreation and culture at 2.4 percent.
The actual inflation rate last month exceeded the expectation of the government at 5.9 percent.
Biswas’ projection for the August inflation was at 5.8 percent, while analysts were pegging their outlook at around 6 percent.
“Further BSP tightening is also possible during fourth quarter of 2018, as the CPI inflation rate is now far above the upper end of the BSP’s inflation target range,” the IHS Markit economist said.
The country’s economic managers set GDP growth target between 7 percent and 8 percent at end of this year.
But Budget Secretary Benjamin Diokno admitted that the economic team will likely revise downward this target given the inflation spike, which has averaged 4.8 percent this year.