Anti-inflation measure could be harmful to economy – economist

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The expected tightening of the central bank’s policy settings aimed to protect the economy against rising inflation rate could have a negative impact on economic growth, an economist said.

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The comment came from Benjamin Diokno, economics professor at the University of the Philippines (UP) following the release of the May inflation report, which showed that inflation during the month further rose to 4.5 percent.

The higher inflation turnout sparks analyst projections that the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) may hike its key policy rates in its upcoming monetary policy meeting on June 19.

“If I were a policy maker, I won’t worry too much about it [inflation rate]as I would be worried with the massive joblessness,” Diokno said in a text message to The Manila Times.

The UP economist noted that the latest inflation rate is still within the government’s official target of 3 percent to 5 percent in 2014.

Diokno said that the uptick in prices is not due to excessive aggregate demand but more on transitory high food prices.

“A strong anti-inflation response by BSP could be more harmful than helpful to the economy. It could nip the economic expansion at the bud,” he explained.

The economist said that by raising interest rates, it could result in lower investment at a time when higher investment is needed thus resulting in higher unemployment.

“For most Filipinos, the choice is clear: he would rather be employed with mild inflation than be idle with low inflation,” he said.

Latest data from the Philippine Statistics Authority showed that the number of jobless people in the country worsen in January 2014 as the unemployment rate is estimated at 7.5 percent higher than the 7.1 percent a year earlier.

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