BSP expects May inflation steady at 8.1%-8.6%

The Bangko Sentral ng Pilipinas (BSP) is expecting the May inflation to remain stable at 8.1 percent to 8.6 percent as lower oil prices cushioned the overall price increase.

BSP Deputy Governor Amando M. Tetangco told reporters yesterday that domestic prices were on the upswing but the drop in the prices of oil and oil products tempered these increases.

"It’s the factor that kept the May inflation close to the April rate," Tetangco said. "If oil prices had kept going up, we would have seen faster acceleration in domestic prices. But oil prices have been lower this month."

Since April, the BSP noted that the domestic prices of rice and other cereals have gone up, leading the increase in the prices of goods in the consumer basket.

Tetangco said the BSP’s actual projected average inflation rate was a range of 8.1 percent to 8.6 percent for May, the same as the projected range for March and April.

For the whole year, the BSP is expecting inflation rate to hit 6.8 percent to 7.1 percent should the government grant the demand to increase transport fares.

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.

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.

At least four regional wage boards were also on the verge of making a decision on whether or not to increase the daily minimum wage by P20 — still well within the BSP’s assumed wage increase of the year.

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.