Inflation expected to remain within target

MANILA, Philippines - No “second-round” effects from the sustained rise in the prices of commodities have been observed so far, the Bangko Sentral ng Pilipinas said, adding inflation is still expected to remain within target for this year until 2016.

“The MB (Monetary Board) noted that broad-based indications of second-round effects of food price shocks have not thus far become evident,” according to the latest Highlights of the Meeting of the Monetary Board on Monetary Policy Issues.

“Recent wage petitions have not diverged significantly from their historical trends and there are no new calls for transport fare adjustments,” the central bank said.

The so-called “second round” effects of inflation happen when workers demand for higher wages to offset the already high living expenses.

“Nonetheless, the MB was of the view that second-round effects of supply-side pressures will require close monitoring,” the BSP said.

“Average annual inflation is still expected to settle within the government’s target range for 2014 to 2016… Inflation expectations remain well-behaved although near the upper bound of 2015-2016 target range,” the BSP said.

Inflation stood at an average rate of 4.4 percent in the first nine months of the year, above the midpoint of the three-to five-percent target range. For 2015 and 2016, the government expects inflation to settle at two to four percent.

“However, the balance of risks to future inflation is still dominated by upside risks. Possible upticks in food prices as a result of tight domestic supply conditions, delays in goods shipments due to port congestion, pending petitions for adjustments in utility rates and looming power shortage pose upside risks to inflation,” the BSP said.

“In addition, higher-than-expected liquidity growth remains a risk that could lead to higher inflation. Meanwhile, downside risk could stem from slower global economic activity and fiscal underspending,” the BSP said.