INFLATION may remain elevated this year due to higher commodity prices and the continued pork shortage, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said.

The risk to the inflation outlook is slightly on the upside for 2022, he said.

“These risks are mostly associated with a prolonged shortage in domestic pork supply, along with higher global commodity prices due to improving global demand amid lingering supply-chain bottlenecks,” Mr. Diokno said in an open letter to President Rodrigo R. Duterte dated Jan. 18.

“We would like to assure the President and the Filipino people that the BSP is closely monitoring developments and challenges brought about by the pandemic to ensure that the monetary policy stance remains consistent with its price and financial stability objectives,” he added.

A Development Budget Coordination Committee (DBCC) resolution requires the BSP to issue an open letter to the President to explain why actual inflation deviated from the target in a given year.

Headline inflation averaged 4.5% in 2021, beyond the 2-4% target set by the BSP. Inflation was only within target for two months in 2021 — in December and in July, when it was at 4%.

Mr. Diokno said beyond target inflation in 2021 was mainly due to low supply of staple food items and the spike in oil prices.

For this year and 2023, the BSP expects inflation to settle within target at 3.4% and 3.2% respectively.

“The BSP’s inflation forecasts indicate a reversion towards the target range in 2022 and 2023, suggesting a manageable inflation outlook. Inflation expectations have also remained firmly anchored to the target band, based on the BSP’s surveys of private sector economists and analysts,” he said.

“The BSP tends to look through the initial impact of supply shocks because monetary policy has a limited impact on cost-push forces,” he added.

Other factors that could slow inflation include the new variants of coronavirus disease 2019 (COVID-19), as it may require tighter restrictions and cloud economic growth prospects.

“The inflation outlook is subject to considerable level of uncertainty given developments relating to the COVID-19 pandemic, which could affect domestic and external economic conditions going forward,” Mr. Diokno said.

The central bank will have its first policy review this year on Feb. 17. In its Dec. 17 meeting, the Monetary Board maintained rates at record lows to support the economy amid the threat from the Omicron variant.

The Philippine Statistics Authority will report the January inflation on Feb. 4. For the first time, 2018 will be used as the base year for the CPI from 2012 previously. — L.W.T.Noble