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Wages watched for price impact

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AN UNEXPECTED increase in minimum wages could prompt the Bangko Sentral ng Pilipinas (BSP) to raise rates anew, a global bank said, even as inflation is expected to ease over the coming months.

HSBC Global Research said the softer-than-expected 4.6% inflation rate in May eased pressure on the central bank in terms of reining in the pace of price increases for basic goods.

However, an extraordinary hike in worker salaries could revive upward price pressures.

“[T]wo key developments to look out for in the coming months are rising wages and rice prices. There has been mounting pressures for a wage hike in the Philippines, and its realization could push second-round impacts that are likely to prompt the BSP to hike rates,” HSBC economist Noelan Arbis said in a report.

The BSP announced a 25-basis-point rate hike on May 10 as policy makers sought to temper inflation expectations and assure markets that monetary authorities maintain a firm hand on price control.

Central bank officials have been flagging wage hike petitions as among the reasons they expect inflation to likely trend higher.

BSP Deputy Governor Diwa C. Guinigundo has said that the central bank has factored in an P18-20 rise in daily minimum wages, a modest level compared to petitions filed by labor groups.

Currently, the highest daily minimum pay is set at P475-P512 for workers in Metro Manila, reflecting a P21 raise.

Mr. Guinigundo said the central bank’s forecast is based on the amounts approved by regional wage boards over the past few years.

The BSP said it was “watchful” of petitions for increases in the daily minimum wage and in public transport fares since these signal that inflation was seeping deeper into the economy beyond basic goods.

“Meanwhile, passage of a government proposal to end quantitative restrictions on rice imports should put downward pressure on headline prices and help curb inflation expectations in the near-term,” HSBC added in its report.

“In short, the BSP still has a lot of things to consider in the coming months, but [May inflation] print is nonetheless a welcome development as the central bank aims keep inflationary pressures under control.”

May’s 4.6% clip is the fastest in at least five years and marked a steady ascent for the fifth straight month. The Philippine Statistics Authority said the biggest year-on-year gains were recorded in the cost of liquor and cigarettes, transport, restaurant and miscellaneous goods, and home furnishings.

BSP Governor Nestor A. Espenilla, Jr. said the inflation outlook “continues to be a concern” but is showing signs that it may be close to its peak.

Economic managers, however, said that cash transfers to the poorest families as well as the lifting of rice import quotas should help temper price spikes.

Year-to-date inflation stands at 4.1% as of May, above the BSP’s 2-4% target but lower than its 4.6% forecast for the entire 2018. — Melissa Luz T. Lopez





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