Inflation seen on target for 2013

Posted on November 16, 2013

Inflation is expected to settle within the central bank’s 3-5% goal for this year as price pressures are expected to remain benign, Bangko Sentral ng Pilipinas (BSP) on Friday said.

“Price pressures are expected to remain benign. Results of the BSP’s latest forecasting exercises showed within-target inflation over the policy horizon,” the central bank said in its third quarter inflation report, released on Friday.

“On the whole, inflation is expected to remain manageable against a backdrop of robust domestic economic activity amid well-behaved commodity prices and the continued expansion of domestic productive capacity,” the BSP further said.

The BSP forecasts inflation will settle at 3% by the end of the year, at the low end of the central bank’s target for 2013.

“The lower inflation path for 2013 could be attributed to the lower-than-projected actual inflation in third quarter,” the BSP said.

As of October, inflation settled at 2.8%, below the BSP’s target and forecast for the year.

For next year, inflation is projected to settle at 4%, at the midpoint of the central bank’s 3-5% target, and at 3.4% in 2015, within the BSP’s 2-4% goal.

The central bank’s third quarter inflation report has not taken into account the effects of super typhoon Yolanda (international name Haiyan) -- described as the strongest that hit the country this year. The bank said it is still in the process of gathering data.

“We cannot be precise with the impact of Yolanda on inflation yet. Even the NDRMMC (National Disaster Risk Reduction and Management Council) is still gathering information, so it is difficult to quantify,” said BSP Deputy Governor Diwa C. Guinigundo, during a briefing on Friday.

Moving forward, “The BSP’s review of current price trends and risks to future inflation suggests that the risks to the inflation outlook are slightly skewed to the upside.”

“Strong liquidity growth could fuel inflationary pressures. Large capital inflows warrant close monitoring as this could lead to a build-up in liquidity and subsequently, price pressures. Excess liquidity may also lead to financial imbalances such as asset price bubbles,” the BSP said.

However, general easing in capital inflows due to uncertainties abroad was seen earlier this year. The Philippine Stock Exchange index and the peso hit multi-month lows but have since rebounded.

Capital inflows, the BSP said, are expected to continue through 2014, “barring any unexpected financial market shifts in relation to the US monetary policy tightening.”

Mr. Guinigundo said that the central bank is prepared for any reversal of capital inflows.

“The monetary policy tools and macro prudential measures that should be in place are still in place,” he said.

Commenting on the impact of Yolanda for this year’s growth, Mr. Guinigundo said: “The impact of the typhoon on economic activity will be felt, but limited ... as there will be counter-ways coming from economic spending, that is, reconstruction of roads, demand from the housing sector.”

“In general, economic growth is doable within the range of 6-7% this year, but it is still difficult to quantify at this time, so we are saying that there will be impact on economic activity. But for 2013, it will be manageable, and economic growth will stay within the target,” he added.

On Thursday, Socioeconomic Planning Secretary Arsenio M. Balisacan said October-to-December GDP growth could fall between 4.1-5.9%, much slower than the above 7% recorded in the first two quarters of the year.

“Preliminary estimate of the damage and production losses suggest that full-year growth could be reduced by 0.3-0.8 percentage point depending on the assumed level of accuracy of the data available at this time,” Mr. Balisacan said in a text message.

Given the estimated impact, full-year GDP growth could hit 6.5-7.0%.

Meanwhile, reacting to the statement of incoming US Federal Reserve Chairwoman Janet Yellen on Thursday in her appearance before the Senate, Mr. Guinigundo said, “The comment of Ms. Yellen is simply saying that the stimulus program will continue as long as necessary, generating positive impact on stock markets all over the world.”

He stressed that the central bank already took the view that the US Fed’s tapering will happen at some point, “so we are prepared for any eventuality.” -- Ann Rozainne R. Gregorio