Government retains low inflation targets for this year

The Cabinet-level Development Budget Coordination Committee (DBCC) maintained the government’s two to four percent inflation target range for this year up to 2018.

In a statement, the Bangko Sentral ng Pilipinas (BSP) said the DBCC, in a resolution last Dec. 29, 2015, announced its decision citing the inflation range “remains suitable to the Philippine economy and is consistent with the country’s evolving price dynamics and sustained economic growth objectives.”

“The current low inflation environment could be sustained over the medium term as underlying structural inflation dynamics are favorable with the improved ability of the domestic economy to accommodate supply shocks,” it said.

The BSP noted that rate of price increases before the government implemented the inflation-targeting framework “has been observed to return faster to the target while the influence of the foreign exchange rate has diminished.”

“Structural reforms in the economy could generate further productivity gains and raise the economy’s growth potential, allowing the economy to grow at a respectable rate while maintaining prices stable,” it pointed out.

The BSP also said that “greater transparency in the conduct of monetary policy also enabled the firmer anchoring of inflation expectations to the inflation target.”

“Going forward, the BSP will continue to ensure that the monetary policy stance remains appropriate, consistent with its primary mandate of safeguarding price stability conducive to a balanced and sustainable economic growth,” it added.

Higher prices of liquefied petroleum gas (LPG) and food prices due to typhoon “Nona” is seen to push the inflation rate in December to between 1.1 percent to 1.9 percent but the central bank said full-year average is seen to be below target.

BSP Governor Amando Tetangco Jr. said higher electricity rates and a weaker peso could play as upside factors in the domestic rate of price increases.He, however, said these factors can be countered by lower prices of rice and oil products.

“The average inflation for 2015 is expected to be below the two to four percent target for the year,” he said. Inflation averaged at 1.4 percent in the first eleven months of the year.

Last November alone, inflation rose for the first time after being below-target for the last six months.Inflation fell below target last May to 1.6 percent from month-ago’s 2.2 percent due to continued drop in oil prices.

“Moving forward the BSP will remain watchful of economic and financial developments to ensure sustained price and financial stability,” Tetangco added.