BSP sees average inflation rate climbing this year

The proposed increase in transport fares is expected to result in a slight increase in the national average inflation rate but monetary officials worry about the second round impact that could lead to higher inflation, especially if wages are adjusted.

The Bangko Sentral ng Pilipinas (BSP) said yesterday that its projected baseline inflation rate for the year would be adjusted to 6.82 percent to 7.1 percent from the original projected range of 6.79 percent to seven percent for the whole year.

The BSP’s inflation projection is critical in determining the monetary policies of the Monetary Board which bases its decision on inflation outlook for the rest of the year.

The MB had already adjusted its policy rates by 25 basis points and the market is expecting a series of measured adjustments in the coming months.

The BSP said the adjusted inflation range only reflected the immediate impact should the government approve the increase in transport fares demanded by jeepney and bus operators and drivers.

On the table is the proposed P2.50 adjustment in jeepney fares from the current P5.50 to P8 for the first five kilometers and the proposed P3 adjustment for bus fares from P6 to P9 for the first five kilometers.

According to BSP Assistant Governor Diwa Guinigundo, the immediate impact of the transport fare adjustments would be minimal but admitted there will be subsequent adjustments in the prices of commodities.

"If transport fares are increased, naturally we will see a corresponding reaction in the prices of basic commodities like vegetables, meat products and the like," Guinigundo said.

Eventually, the acceleration of price increases could fuel fresh calls for wage adjustments, completing the second-round inflationary effect that the BSP has been watching out for.

According to Guinigundo, however, there was nothing in the BSP projections that indicated further increases in oil prices that would translate to more problems down the road.

"We expect global demand to ease and supply to increase," Guinigundo said. "Our indicators suggest that oil prices will go down."

Before the calls for the transport fare adjustments, Guinigundo said the BSP’s whole year projection for the national average inflation rate was 6.79 percent to seven percent.

If the proposed adjustments were approved, he said they would add between 0.03 to 0.1 percentage points, translating to a new projected inflation rate of 6.82 to 7.1 percent.

Guinigundo explained that the BSP’s projection considered the transport fare adjustment, the two-percentage point increase in value-added tax, oil price increase and the proposed adjustment in power rates of the National Power Corp.

"On the demand side, we have to consider the effect in case there is an adjustment in wages," he said.