Causes of recent inflation uptick ‘transitory,’ BSP says

THE FACTORS behind the recent uptick in inflation are “transitory,” such as the tightening of the pork supply, but do not indicate the economy to be on a path to reflation, the central bank said.

“Reflation is the act of bringing inflation from very low levels back up to its long-term trend after a period of disinflation and economic downturn. This is not the case,” Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said in an online briefing Thursday.

He said reflation happens when price levels recover after having fallen below their long-term historical average.

Inflation rose to 4.7% in February, exceeding the 2-4% target and the highest level since the 5.1% recorded in December 2018. Food prices surged due to supply disruptions caused by November typhoons and the African Swine Fever outbreak.

“The current uptick in inflation in the Philippines is supply-side and temporary in nature. Accordingly, it requires mainly non-monetary responses such as measures to address domestic food supply concerns,” Mr. Diokno said.

In a note, Moody’s Analytics said demand-pull inflation will likely remain weak until June. Still, it said the situation remains a matter of concern.

“Elevated inflation, a large output gap, a recent resurgence of COVID-19 infections, and limited vaccine availability are all reasons for concern,” Moody’s Analytics said on Monday.

Mr. Diokno said that while non-monetary measures are in place to address the supply-side inflation uptick, he said the central bank will remain accommodative while also watching out for signs for second-round effects such as a clamor for higher wages and higher transport fares.

The central bank expects headline inflation to average 4.2% this year before easing to 2.8% by 2022, factoring in a recovery in oil demand as well as higher food prices.

On Thursday, the Monetary Board maintained its key policy rate at 2% to help support the economic recovery. — Luz Wendy T. Noble

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