WAGE and transport fare hikes will likely keep inflation high for the rest of 2018, the central bank said, adding that overall price increases are expected to moderate only next year.
“The risks to future inflation remain on the upside in 2018, but downside risks to the outlook are seen to dominate in 2019-2020 due largely to the projected impact of rice tariffication,” the policy-setting Monetary Board of the Bangko Sentral ng Pilipinas (BSP) said in deciding to raise interest rates last month.
Monetary policy makers fired off another tightening move amounting to 50 basis points (bp) in their Sept. 27 meeting, matching a similar interest rate increase announced in August.
That marked the fourth straight meeting wherein the BSP raised rates. The key policy rate is now at 4.5%, the highest since March 2009.
The central bank cited four factors that will likely push prices up further in the remaining months of the year.
“Additional wage adjustments and transport fare hikes, higher electricity rates and faster-than-expected monetary policy normalization in advanced economies are the main upside risks to inflation,” the BSP said in the four-page meeting highlights published yesterday.
The Land Transportation Franchising and Regulatory Board has approved a higher P10 minimum jeepney fare in Metro Manila, Central and southern Luzon, while provisional fare increases have been granted for Metro Manila and provincial buses effective November.
BSP Deputy Governor Diwa C. Guinigundo has said that the central bank has factored in an P18-20 increase in daily minimum wages in its inflation forecasts, based on the average increments approved in previous years.
So far, 12 of the country’s 17 regions have adopted increases in daily minimum wage for private sector workers — ranging from P8.50 in Western Visayas to as much as P56 in Davao Region — and a decision on Metro Manila’s floor pay is expected as soon as next week.
Labor Secretary Silvestre H. Bello III has said Metro Manila’s increase will be no less than P20 — an amount some employers have said could be tolerable — though the Associated Labor Unions-Trade Union Congress of the Philippines is seeking a P335 hike while the Association of Minimum Wage Earners and Advocates is asking for a P688 increase.
In wage consultations on Wednesday, representatives of various business groups warned that a wage hike at this time of multiyear-high inflation rates could drive micro, small- and medium-scale enterprises — which account for 99% of companies and 60% of employment but contribute only 36% of gross value added — to lay off workers or go out of business altogether, while most businesses will likely pass on the higher labor cost to customers through even higher prices.
On the other hand, slower global economic growth due to increasing trade protectionism and geopolitical tensions, as well as liberalization of rice importation should help temper price increases, the BSP said.
The BSP estimates 2018 inflation to settle at 5.2% before easing to 4.3% next year, both still higher than the 2-4% target range for 2018 and 2019.
However, Monetary Board Member Felipe M. Medalla has said that the proposed rice tariffication law — which wold remove rice import quotas set by government and allow any private firm to source the crop abroad — will shave 0.7 percentage points (ppt) of the headline inflation print.
The measure still awaits approval by the Senate, which is expected to approve it after lawmakers return from their Oct. 13-Nov. 11 break.
The proposal to suspend the scheduled P2 per liter fuel excise tax in 2019 would also reduce inflation by 0.2 ppt, according to BSP Assistant Governor Francisco G. Dakila, Jr.
Inflation hit a fresh nine-year-high 6.7% in September, pushing the year-to-date pace to five percent. — Melissa Luz T. Lopez