BSP sees October inflation ranging from 2.7% to 3.1%

Despite the continued stability of domestic food prices, the increase in world oil prices is expected to push the country’s national average inflation rate to as high as 3.1 percent in October.

The Bangko Sentral ng Pilipinas (BSP) said yesterday that the average inflation rate was likely to hit the 2.7 to 3.1 percent range this month, after hitting 2.9 percent in September.

According to BSP Governor Rafael Buenaventura, the increase in oil prices would be reflected this month amid threats of wage increases and transport rate hikes that would put further pressure on domestic prices.

The BSP has been lobbying for the National Economic and Development Authority (NEDA) to move the 2003 inflation target up to 4.5 to 5.5 percent to provide a cushion that would give monetary officials the flexibility to keep interest rates low.

Buenaventura told reporters that the NEDA has already admitted the possibility that next year’s inflation would inch up as a result of the unresolved conflict between the US and Iraq.

According to Buenaventura, the emerging estimates for next year were consistent with the original inflation forecast for 2003 which he said would give the BSP more room instead of being forced to keep inflation down to the four to five percent range approved earlier by the cabinet.

The BSP has been pressing for a higher inflation target for 2003, saying that the four to five percent range was too restrictive, since the central bank’s monetary policies were virtually dictated by the Arroyo administration’s strategy of inflation targeting.

This meant that the BSP was obligated to adjust its monetary policies in order to stay within the inflation target set by NEDA.

However, in his testimony before the public hearing of the Senate committee on appropriations, NEDA Director General Dante Canlas admitted that the 2003 inflation could reach an average of 5.5 percent should the US-Iraq conflict escalate.

Canlas said that if the US-Iraq conflict escalates, the impact on crude oil prices could send the barrel price to $32. At this level, he said inflation would go up to 5.5 percent and the national deficit would go up by P1.76 billion more.

Buenaventura said this was the original estimate made by the economic planning team and would make more policy sense in terms of setting monetary policies.

"I think he (Canlas) is on target," Buenaventura said. "We could have really brought the inflation rate down to four to five percent were it not for the extraneous situation we are looking at for 2003 which would bring us back to the 4.5 to 5.5 percent range."

According to Buenaventura, the 4.5 to 5.5 percent inflation range had enough cushion for collateral damage should the Middle East crisis worsen and put more pressure on world crude oil prices.

Thus far, the BSP has been successful at keeping interest rates very low, at one point hitting a record low of 4.299 percent (April 29, 2002) for 91-day Treasury bills.