October 13, 2021

Non-monetary methods to manage inflation concerns on the supply side

Following the slowing in the domestic rate of price rises last month, the Bangko Sentral ng Pilipinas (BSP) emphasized the need for effective execution of non-monetary policy measures to manage supply-side inflation concerns.

The Philippine Statistics Authority (PSA) announced on Tuesday, October 5, 2021, that inflation decelerated to 4.8 percent in the ninth month of this year, down from a 32-month high of 4.9 percent the previous month, owing mostly to slower increases in the transport index.

It raised the nine-month average to 4.5 percent, far over the government’s goal range of 2% to 4%.

Core inflation remained unchanged at 3.3 percent from the previous month, excluding volatile food and energy goods. So far, the average core inflation has been 3.3 percent.

BSP Governor Benjamin Diokno stated in a Viber message to media that September 2021 inflation was at the lower half of the central bank’s projected range of 4.8 percent to 5.6 percent.

The high inflation rate is likely to persist in the coming months before falling to within-target levels by the end of the year, according to Diokno.

He cited the effect of weather disruptions, global oil prospects, and African swine disease as supply-side variables that continue to push domestic inflation (ASF).

“Timely non-monetary policy measures that may alleviate domestic supply restrictions are the best way to handle these supply-side shocks.” “The effective execution of these supply reforms is strongly dependent on the return of inflation to the target range,” he said.

“Risks to the inflation forecast remain skewed to the upside for the remaining months of 2021, but remain roughly balanced for 2022 and 2023,” Diokno added, referring to the anticipated high inflation rate in the short term.

He highlighted the sources of upside risks as worldwide market pressures on commodities prices, weather-related impacts, and lengthy recovery from the ASF epidemic.

However, the development of highly infectious forms of the coronavirus disease 2019 (Covid-19) and weaker-than-anticipated global economic prospects are likely to counteract these effects.

“Looking forward, the BSP is prepared to continue its accommodating monetary policy stance for as long as it is required to support the economy’s sustained recovery to the extent that the inflation forecast permits,” Diokno said.

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