NextGen Day

MANILA – Governor Benjamin Diokno of the Bangko Sentral ng Pilipinas (BSP) believes that non-monetary policy measures are the best way to manage the domestic economy’s damage from the current Russia-Ukraine conflict.

Diokno said the conflict’s biggest impact on the Philippine economy is higher prices for commodities such as oil and food, which impacts inflation and, in turn, lowers the value of income and reduces demand, in a virtual briefing on Wednesday.

He claimed that the battle between the two countries exacerbated global commodity price increases by adding to supply-side disruptions.

According to Diokno, both countries account for about 29% of worldwide wheat exports and 19% of global corn supplies.

He went on to say that the conflict’s inflationary impact has been felt in the domestic economy since last March, when energy-related inflation pushed up prices.

Inflation rose to 4.9 percent in April from 4 percent the previous month, above the government’s goal range of 2-4 percent through 2023.

Inflation averaged 3.7 percent in the first four months of this year, while monetary authorities predict a full-year average of roughly 4.3 percent.

“To summarize, inflation risks are skewed upward this year, but broadly balanced in 2023.” The domestic food supply shortage, as well as the possible impact of increasing oil prices on transportation rates, remain upside risks in the near term,” he said.

Supply-side shocks, such as increases in the price of oil and other commodities on the international market, have “been best addressed in the past through timely non-monetary policy interventions that could ease domestic supply constraints and prevent second-round effects on prices,” according to Diokno.

To soften the impact of the oil price increase on these vulnerable sectors, the government has distributed fuel subsidies to drivers of public utility vehicles (PUVs), farmers, and fishermen.

In the National Capital Region (NCR) and Western Visayas, the Regional Tripartite Wages and Productivity Board has announced an increase in the minimum wage.

There have also been demands for minimum fares, which are among the second-round repercussions of greater inflation.

According to Diokno, the announced salary increases are “compatible with the expansion of the country’s labor productivity as well as prior minimum wage changes,” and are “within their baseline predictions.”

“Higher-than-expected salary adjustments due to the increase in oil prices would lead to additional second-round effects on inflation,” he warned.

“However, the BSP continues to employ a wide range of policy instruments in response to the potential negative consequences of this external shock.” The BSP also supports the government’s prompt execution of certain immediate non-monetary measures to alleviate the impact of rising oil prices,” he added.

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