Inflation pressures ease, says BSP

Pressures on the inflation rate have abated but the Bangko Sentral ng Pilipinas (BSP) expects food and oil prices to remain volatile, creating enough room only for keeping monetary policy steady.

The BSP said the inflation forecast are likely to be lower than previous estimates although the revised official forecast was not released pending approval by the Development Budget Coordinating Committee (DBCC).

The BSP said in a briefing yesterday that rice prices have appeared to have peaked in September which had led to the slowdown in rising food prices as a whole.

But according to the BSP, oil prices are expected to remain volatile because the movements in global demand could be easily affected by positive supply shocks.

“We believe oil prices will continue to be volatile,” said Cyd Amador, managing director of the BSP’s Department of Economic Statistics.

Although commodity prices have corrected, Amador said there are still price pressures in the pipeline.

“The driving force behind sustained run-up has been tightness in supply and demand balances,” Amador said. “Supply responses to rising relative prices have been slow due to geological and technological constraints especially in oil sector.”

Nevertheless,  Amador said that based on the latest available data, inflation outlook were showing reduced price pressures, with the inflation forecast lower than previous estimates in 2008 and 2009.

Amador said the inflation rate was also likely to be within target by 2010. No official target has been announced for 2010 but the BSP earlier said the target range was somewhere between 2.5 percent and 4.5 percent.

“There is also no further evidence of additional second round effects and improving inflation expectations and base effects will also have a positive impact,” she said.

In sum, Amador said the BSP considered upside risks to be balanced with the downside risks. She said the central bank is still looking at the volatility in prices, the depreciation of the peso and the remaining possibility of wage adjustments.