INFLATION surged anew in September to a fresh nine-year high as the strong

typhoon which hit last month worsened supply issues for rice and other crops,
spurring calls for further interest rate hikes from the central bank.

Prices of basic goods and services jumped by 6.7% in September, surging

from 6.4% in August to mark the ninth straight month of increase, the
Philippine Statistics Authority (PSA) said on Friday.

The rate soared from three percent in September 2017, and falls just below
the 6.8% median forecast from a BusinessWorld poll as well as the estimate
given by the Bangko Sentral ng Pilipinas (BSP).

This is also the fastest pace logged since the 7.2% climb recorded in February
2009, and brings the nine-month average to 5%, an entire percentage point
higher than the state’s 2-4% target and still below the 5.2% BSP forecast for
the full year.

Both the President’s economic team and the BSP believe that inflation will be
on a downtrend following the fresh multiyear high last month.

“Barring unforeseen events in the last quarter of the year, we could have seen
the peak of inflation in recent period and initial signs of disinflationary trend
through 2020,” BSP officer-in-charge Deputy Governor Diwa C. Guinigundo
said in a text message.

The economic team also noted “clear signs of easing” that inflation will taper
off by yearend, adding that the “speedy passage” of the Rice Tariffication bill
would pave the way for the “earlier return” to below four percent, as it would
raise the supply of cheap rice and ease the burden for hungry Filipinos.

For his part, BSP’s Mr. Guinigundo gave hints that it may be “too early to
comment” on their next moves as they await more economic data.
“In general, the BSP will remain vigilant with strong tightening bias until such
time that we are certain inflation can be sustained within the target range of 2-
4 percent for 2019 and 2020,” the central bank official said.

The BSP will hold its seventh rate-setting meeting this year on Nov. 15. The
central bank has already raised benchmark yields by a cumulative 150bps
since May to douse inflation expectations and show a strong hand to commit
to temper consumer prices.

https://www.bworldonline.com/inflation-hits-fresh-9-year-high-in-sept/

The central bank’s Department of Economic Research gave a September

inflation forecast of 6.8%, with a range of 6.3% and 7.1%.

If realized, it would be the highest since February 2009’s 7.2% print, and is
faster than the 6.4% recorded in August.

“Looking ahead, the BSP will continue to remain on guard to evolving

inflationary conditions to ensure that the monetary policy stance remains
consistent with our price stability mandate,” the statement read.

The central bank has so far raised interest rates by 150 basis points since
May.

https://www.bworldonline.com/bsp-sees-sept-inflation-at-6-8/

Based on its latest assessment, the central bank now sees inflation averaging 4.9
percent this year and 3.7 percent next year due to higher oil prices, weak peso, and the
impact of the implementation of the Tax Reform for Acceleration and Inclusion
(TRAIN) Law.
This prompted the BSP to jack up interest rates by 100 basis points so far this year to
rein in inflationary expectations. It lifted interest rates by 25 basis points for the first
time in more than three years on May 10 followed by another 25 basis points last June
20, and by 50 basis points – the biggest in 10 years – last Aug. 9 to curb rising
inflationary pressures.

“The role of these moves by the BSP is not so much to cripple the economy, but rather
we are conscious that it is important to get people to calm down about inflation,”
Espenilla said.

According to Espenilla, stable inflation is one of the key fundaments that define the
external perception of how well the economy is doing.

SP Governor Nestor Espenilla Jr.

Espenilla said the BSP adopted the inflation targeting framework for monetary policy
in 2002, requiring monetary policy decisions to be forward looking by considering the
widest set of available and relevant information about the economy.

“One of the important things is the discipline that inflation targeting entails, it means
that we are going to be disciplined by data, we will not be stampeded by rumor, we
will not be stampeded by innuendo, nor could we be panicked. We have to be calmly
looking at the data as it happens and interpret these based on our best analysis on how
it serves the country’s interest,” he said.

The BSP chief said inflation forecasts have shifted higher over the policy horizon
starting the second quarter warranting the tightening of the country’s policy stance as
the inflation environment was driven by supply-side factors in the first quarter.

"Going forward, the BSP will continue to keep a watchful eye on the risks to the
inflation outlook and will take necessary action to help ensure that inflation
expectations remain firmly anchored to the target," the BSP said.
To combat higher inflation, Guinigundo said government agencies have to "implement non-
monetary measures."
BSP Deputy Governor Diwa Guinigundo
The BSP will remain watchful of economic and financial developments that could
affect the inflation outlook and will closely monitor inflation expectations and
emergence of further second-round effects ahead of the September 2018 Monetary
Board policy meeting,” it said.

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The Monetary Board said that inflation expectations remained elevated for 2018 and
that the risk of possible second-round effects from ongoing price pressures argued for
follow-through monetary policy action.
Espenilla said while inflation expectations remained within the target range for 2019,
elevated expectations for 2018 highlighted the risk posed by sustained price pressures
on future wage and price outcomes.
Espenilla said a further policy action would enable the Bangko Sentral to reinforce its
signal on safeguarding macroeconomic stability in an environment of rising commodity
prices and ongoing normalization of monetary policy in advanced economies.

http://manilastandard.net/business/economy-trade/272429/inflation-rises-to-5-7-bsp-mulls-over-
options.html

Espenilla once again reassured the public that they are committed to managing the inflation environment and
are prepared to act when warranted. “We have left the door open for further action in case we have to as more
data come in,” he said. For the first seven months, inflation averaged 4.5 percent. Inflation rose to 5.7 percent
in July from 5.2 percent in June and 4.6 percent in May.

The BSP chief also addressed concerns over the possible impact of Turkey’s currency crisis which could add
another level of volatility to the local peso.

Espenilla said the Turkish lira crisis brings another element to both the inflation and foreign exchange
dynamics. “We hope that crisis will settle down so we don’t have to worry about. (Still) a lot can happen it can
create instability of the exchange (market) … our peso can be affected.”

Espenilla said he sees plenty of possibilities if the Turkish lira “dives deeper into crisis” but that they will
“prepare for the worst” while hoping the situation will eventually correct itself.

The Turkish lira has lost more than 35 percent vis-à-vis the US dollar, a result of a US-Turkey trade war on
steel products and other items. Based on reports, this is all tangled up in a diplomatic disputes over the
repatriation of an American evangelical pastor who was being held in Turkey.

Espenilla said they will continue to let market forces dictate the peso-US dollar exchange rate but they are
allowed to intervene in times of excessive volatility. He has often noted that the inflation-exchange rate
dynamics are changing, although the pass-through effect has diminished over time.
“Starting in the second quarter 2018, we note that (inflation) forecasts have shifted higher over the policy
horizon. Upside risks also continue to dominate the inflation outlook. Meanwhile, inflation expectations
remain elevated. We also recognize that sustained pressures on the peso could adversely affect inflation
expectations,” said Espenilla. The BSP responded by raising policy rates last May, June and August.

The peso at the mid-P53 level versus the greenback has depreciated by almost seven percent since 2018
started, mainly because the US dollar is strong on rising US rates and market concerns over global trade wars
and higher prices of international oil which are driving up inflation not only in the Philippines but across all
other economies.

The BSP has been on an aggressive signalling of monetary response since late July. While raising rates is not
directly to impact the exchange rate, on Friday Espenilla said they are maintaining a “flexible and market-
determined exchange rate which allows us to conduct independent monetary policy focused on assessment of
domestic conditions (and promotes) our resilience against external shocks.”

Espenilla added that the “recent depreciation of the peso is attributed to both fundamental and non-
fundamental factors.” These fundamental factors, he said, include: higher demand for imports of capital goods,
raw materials and intermediate products in support of our growing economy; and dollar debt repayments,
prepayments, and outward investments.

“Meanwhile, non-fundamental factors reflect various market sentiments over domestic and external
developments adding more pressure on the peso,” he added. “We remain confident that the Philippine
economy’s solid fundamentals will lend support to our flexible peso.”

https://business.mb.com.ph/2018/08/17/inflation- wont-top-6-this-year-bsp-chief/