Bangko Sentral ng Pilipinas Governor Benjamin Diokno said over the weekend there is nothing to worry about the rising consumer prices as the country’s inflation challenges are more manageable than some advanced and emerging economies.
Diokno said in a message to journalists the Philippines was not as affected by elevated asset prices as other economies.
“But the Philippines does not face the labor tightness and the elevated asset prices that most developed countries are facing. Consequently, the Philippines’ response need not necessarily mimic the responses of other countries,” he said.
Diokno said that for many years, the problem faced by many developed countries was how to nudge inflation higher, given that actual inflation rates were persistently below target rates. With the pandemic, this development was reversed, as actual inflation rates exceeded target rates and remained stubbornly high.
He said in the United States, the latest inflation rate reached 7.9 percent; Britain, 5.5 percent; Canada, 5.1 percent; and the Euro area, 5.2 percent. These inflation numbers far exceed 2.0 percent, their target rate.
Diokno said that in the Philippines, the inflation rate in January and February 2022 settled at 3.0 percent, right in the middle of the target range of 2 percent to 4 percent.
The Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, last week, kept the policy rate at a record low of 2 percent.
The Monetary Board, however, raised the inflation forecast for 2022 to 4.3 percent from 3.7 percent made during the February 2022 meeting. The forecast for 2023 was also raised to 3.6 percent from 3.3 percent.
Based on the BSP’s survey of private sector economists, the respondents expect inflation to settle within the government’s target range in 2022, with risks to inflation outlook tilted to the upside. The results showed that the mean inflation forecast for 2022 would rise from 3.5 percent (February survey) to 3.8 percent (March survey).
“Since inflation pressures are coming from supply-side factors, a monetary response in terms of policy rate adjustment is neither appropriate nor responsive. An increase in policy rate will not change the reality that energy and other commodities have surged owing to the Russia-Ukraine conflict,” Diokno said.
“It is when there are clear second round effects on the demand side, say, for example, higher wages and higher transport fares, that the Central Bank may choose to act to mitigate inflation pressures,” he said.
He said that in this case, the Executive Department should do the heavy lifting and it demonstrated in recent episodes that they were able and willing to do so.
“In general, the Executive Department should continue to open the economy. Strict mobility has hampered economic activity. By relaxing restrictions and increasing mobility, economic activity could expand, thereby increasing aggregate supply, which is the best way to create jobs, increase incomes, and reduce prices,” Diokno said.