The National Economic and Development Authority (NEDA) estimated that the transport fare hike would jack up the national average inflation rate to as high as 8.9 percent but monetary officials said the impact was not likely to be that high.
The BSP has been anticipating an increase in transport fares and possibly the adjustment in minimum wages but monetary officials said the fare hike did not mean an automatic increase in policy rates.
The Land Transportation Franchising and Regulatory Board (LTFRB) on Monday approved the P2 adjustment in the basic fare for public jeepneys and buses, effective May 26.
According to BSP Deputy Governor and officer-in-charge Amando Tetangco Jr., however, the impact of the fare hike would not necessarily translate to monetary response.
"There are a number of factors that go into the decision, not just transport fares or even wages," Tetangco said. "But certainly these are two major factors we have to look at."
On the other hand, BSP Assistant Governor Diwa Guinigundo said the impact of the fare hike on inflation was not likely to be as significant especially since it was approved well into the second quarter of the year.
"There is a lag between an event and its inflationary impact," Guinigundo said. "So we expect the full impact to be on the second half of the year only."
At present, Guinigundo said the BSP’s projection for the whole year was still seven to 7.3 percent and said the BSP’s models would have to be recalibrated to determine the impact of the fare hike.
Earlier, the BSP said its projected baseline inflation rate for the year would be adjusted to 6.82 percent to 7.1 percent – very small adjustments compared to 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.
Guinigundo said 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.