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Upside risk

The inflation path could remain above the state’s target not only in September, but also in October — before decelerating to finally settle within target by November this year.

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Monetary authorities on Thursday now see risks to their inflation outlook tilted towards the upside, a reflection of their revised baseline forecasts for the same in 2021.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Francisco Dakila Jr. said inflation might hover above the government’s 2 to 4 percent target — at 5 percent even — for the month of September.

“Since there are upside risks to inflation in the remaining months of the year, then it is possible that inflation could settle above 5 percent in September,” Dakila explained.

“This will be attributable to several factors, including the higher SRP (suggested retail price) on basic necessities, upward adjustments in the domestic petroleum prices and higher electricity rates in Meralco-serviced areas,” he added.

Still, the BSP executive recognized the impact of recent typhoons and the still elevated prices of pork to contribute to the upside risks in their inflation outlook.

According to him, the inflation path could remain above the state’s target not only in September, but also in October — before decelerating to finally settle within target by November this year.

Nicholas Mapa, senior economist at ING Bank, said the recent inflation peak of 4.9 percent in August could continue in September, penciling the possibility of an above 5 percent print for such.

“We expect inflation to move past 5 percent as recent and approaching storm systems will undoubtedly figure into this months’ fruit and vegetable inflation numbers,” Mapa explained.

“Fish and meat prices will also likely remain elevated at a time that energy costs rise as crude oil has stayed close to $70 per barrel,” he added.

While at it, the BSP now sees a higher inflation average for the year with 4.4 percent from just 4.1 percent for 2021 amid the aforementioned upside risks.

Likewise, the central bank’s baseline inflation forecast for 2022 and 2023 now stands at 3.3 and 3.2 percent, respectively, from the previous 3.1 percent for the same.

“The main factors that led to the revision of the forecasts include the higher than expected inflation outturn in August, although it can be noted that (it) continues to be driven by short-term supply side factors, including weather disturbances,” Dakila explained.

Despite the expected faster rise in consumer goods and services’ cost, monetary authorities decided to look past such and retain their key interest rates as of their latest rate-setting meeting in September.

BSP Governor Benjamin Diokno announced earlier the retention of the rate at which the central bank borrows from and lends to banks at the record-low of 2 percent, likewise keeping interest rates on the overnight deposit and lending facilities at 1.5 and 2.5 percent, respectively.

“On balance, the Monetary Board is of the view that prevailing monetary policy settings remain appropriate given the manageable inflation environment and uncertain growth outlook,” Diokno said.

“The Monetary Board reiterates that, together with appropriate fiscal and health interventions, keeping a steady hand on the BSP’s policy levers will allow the momentum of economic recovery to gain more traction by helping boost domestic demand and market confidence,” he added.

According to him, the timely implementation of measures to prevent deeper negative effects of the pandemic, along with the faster vaccination drive, will be crucial in supporting economic activity while shielding public health and welfare.

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