BSP says it may resort to ‘more drastic’ action if inflation expectations worsen

THE Bangko Sentral ng Pilipinas (BSP) may resort to “more drastic” action to tame inflation as rising rice prices and transport fares threaten to de-anchor inflation expectations, a senior official said.

- By Katherine K. Chan

“If rice prices (and transport) fares contribute to increases in inflation expectations above the inflation target at some point in the future, it’s going to take more actions, more drastic actions from the central bank to help inflation expectations go back to the target,” BSP Deputy Governor Zeno Ronald R. Abenoja told a webinar on Thursday.

Mr. Abenoja said inflation expectations continue to drift away from the BSP’s target, with the trend expected to persist over the next three years.

“What we are worried about is that the three-year expectations of inflation is shifting consistently upward, and it could go away from the 3% target. So, that is one thing that we are closely watching,” he said.

“And what we are looking at is how fuel, energy, and food, particularly rice, are playing a role in this formation of these expectations in the next one, up to three years forward,” he added.

The BSP deputy governor also noted that rising food prices, especially rice, amid the ongoing energy crisis and the anticipated impact of climate shocks later this year will stoke Philippine inflation, which has accelerated since the war erupted.

In April, headline inflation quickened to an over three-year high of 7.2%, driven by high oil prices feeding into costs of food and utilities.

This was the second month in a row that inflation breached the BSP’s 2%-4% target and its monthly estimate. It had expected inflation to settle between 5.6% and 6.4% last month.

RISKS TILTED TO THE UPSIDE

In a report published late Wednesday, Oxford Economics said the Philippines will experience heavier inflationary pressures as rising food inflation spills over to related baskets such as food service.