BSP downplays impact of typhoons on inflation

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) does not expect Typhoon Karen (Sarika) and Super Typhoon Lawin (Haima) to have a "significant impact" on inflation in the remaining months of the year, after it took measures to avert a sharp increase in consumer prices.

This was after the central bank announced that consumer prices during the third quarter rose to 2%, from a quarter ago's 1.5%, due to "lean supply season in the rice production as well as weather-related supply disruption of key food items."

BSP Deputy Governor Diwa Guinigundo said during the 3rd quarter inflation report briefing that the government has taken measures to avert any sharp increase in the price of basic commodities, particularly rice.

"Hopefully, there would be no significant impact on inflation, considering that rice accounts for 9% of the consumer basket," Guinigundo said.

He pointed out the National Food Authority (NFA) has already approved the importation of 250,000 metric tons (MT) of rice through a government-to-government arrangement with Vietnam and Thailand.

He added there is also standby approval for the importation of another 250,000 MT of rice.

"As you know, we have sufficient buffer stock maintained by NFA and I am sure even among commercial entities," he said. 

This is on top of the fact that October is the start of the main harvest season.

Storage, drying facilities

Furthermore, Guinigundo said the government has also undertaken other measures such as the establishment of more storage as well as drying facilities.

"I hope those initiatives in the past which were part of mitigation measures that the Department of Agriculture and the NFA have done, including the National Irrigation Administration's focus on irrigation, as well as water impounding facilities would have materialized at this time," he said.

Inflation kicked up to an 18-month high of 2.3% in September, from 1.8% in August due to faster increase in food and non-food prices. 

This brought the average inflation to 1.6% in the first 9 months of the year.

The BSP has set an inflation target of between 2% and 4% for 2016 to 2018.

Dennis Lapid, deputy director at the BSP's Department of Economic Research, said inflation is expected to remain benign over the policy horizon and could settle below the low end of the BSP target range for 2016.

"The risks to future inflation appear to be tilted on the upside," Lapid said.

He explained slower global economic activity poses the main downside risk, while pending petitions for adjustments in electricity rates in the excise tax rate of petroleum products and the corresponding second-round effects on transport fares are the main upside risks to inflation.

Lapid explained the prevailing monetary policy settings remain appropriate.

"Notwithstanding the slightly below-target inflation forecast for 2016, monetary easing does not appear to be warranted at this juncture as supply-side factors – which are largely outside the influence of monetary policy – continue to underpin domestic price movements and benign inflation readings," Lapid said. –