No emerging threats of second-round effects – Diokno – Manila Bulletin


Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said no evidence of second-round pressures was visible on the country’s high inflation despite rising food and oil prices.

BSP Governor Benjamin E. Diokno

Part of the reason, Diokno reiterated, was that the economy had not yet fully recovered and price pressures were still coming from supply side shocks.

Diokno also continues to expect the rate of inflation, which the BSP says could reach a peak of 5.3% or a low of 4.5% for the month of October from 4.8%. in September, will start to decelerate this month or in December. The government will announce October inflation on Friday, November 5.

“There is no clear sign of emerging side effects on freight rates or wages. Part of the reason for this is that inflationary pressures over the past year mainly come from a limited set of components of the CPI (consumer price index) and are mainly due to factors on the side. of the offer, ”Diokno said during an online press briefing.

“Another possible reason is that the economy is still in the early stages of recovery and has spare capacity which also mitigates second-round effects,” he added.

BSP chief executive Zeno Ronald R. Abenoja, also head of the economic research department, said that although international oil prices remain high, they expect a decline in the short to medium term, based on futures price.

“Oil supply can also adjust as demand increases from advanced and emerging economies that open up,” Abenoja said.

He added that BSP “still sees inflation falling by the end of the year until next year” and that the Monetary Board “will assess the situation in about two weeks and announce the results of the latest assessment. “.

The Monetary Council will hold its next monetary policy meeting on November 18, its penultimate policy meeting for 2021.

At Thursday’s press conference, Diokno said the government’s non-monetary measures to dampen domestic supply had been effective in easing inflationary pressures.

He explained that demand-driven inflation tends to be more persistent and likely to have larger second-round effects, calling for a firmer policy response. “On the other hand, supply side shocks tend to be best addressed by timely non-monetary policy interventions to ease domestic supply constraints, as these factors tend to be transient,” he said. he declared.

Diokno noted that the prices of fruit, fish and pork have fallen in recent months. “With the continued implementation of non-monetary measures on the supply side, the BSP expects continued price pressures to dissipate further in the coming months,” he said.

The recent rise in inflation has been attributed mainly to higher prices for a limited number of items in the CPI basket due to supply side pressures which are considered transient in nature.

These supply shocks include the impact of adverse weather conditions on the prices of some agricultural food products, rising prices of imported crude oil and the ongoing African swine fever epidemic in the country.

“Responding to higher inflation requires a clear understanding of the reasons behind inflationary pressures. Demand-driven inflation often requires a firmer monetary policy response. On the other hand, higher inflation caused by rising production costs or supply side constraints requires direct non-monetary interventions that help alleviate these supply constraints, ”Diokno said.

Despite high inflation due to transient factors, the CPI is expected to ease towards the midpoint of the BSP’s two-4% target in 2022 and 2023. The BSP forecasts average inflation of 4.4% for 2021 and 3.3% in 2022.



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