BSP sees inflation at 5% in second, third quarters

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) sees inflation kicking up to five percent in the second and third quarters but would settle within the target of 3.5 percent to 5.5 percent set by monetary authorities this year.

In a press conference, BSP Deputy Governor Diwa Guinigundo said monthly inflation rate would likely hit above five percent in the second and third quarters of the year because of the base effect.

“Monthly inflation rate would reach five percent in the second and third quarters,” Guinigundo stressed.

However, he pointed out that monthly inflation would not likely exceed the high-end of the annual inflation target of between 3.5 percent and 5.5 percent. The BSP sees inflation easing to between three percent and five percent next year.

“Inflation is expected to track a target-consistent path over the policy horizon, with the latest baseline inflation forecasts for both 2010 and 2011 only slightly higher than the forecast in the previous Inflation Report,” he added.

The BSP official said inflation would likely average 4.7 percent this year and 3.3 percent next year despite the impact of the moderate El Nino weather conditions.

According to him, government agencies particularly he National Food Authority (NFA) has put in place measures to cushion the impact of the moderate El Nino weather conditions by importing additional rice from Thailand and Vietnam to make sure that there is enough supply in the domestic market.

Antonio Centura, director of the BSP’s Department Economic Research, told reporters that factors that may cause an upward shift in inflation path relate to the strength of world economic growth, US dollar developments and their impact on global commodity prices, the investment and operational environment in the oil and agriculture sectors, and weather conditions.

Centura also cited power rate adjustments as well as the timing of exit from accommodative macroeconomic policies.

“The latest fan chart shows inflation woulod pick up over the next two quarters then ease gradually towards end-2011 with a higher probability of inflation turning out above central projection than below it,” he said.

On the other hand, downside risks to the inflation outlook include a weak global economic recovery and a sustained appreciation of the peso due to the depreciation of other currencies as well as strong inflows of foreign exchange.

The National Statistics Office (NSO) earlier reported that inflation eased for the first time in five months slowing down to 4.3 percent in January from an eight-month high of 4.4 percent in December due to lower food prices. Actual inflation was below the lower than the central bank forecast of between 4.5 percent and 5.4 percent.