• Q1 inflation creeps up to 4.1%

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    Headline inflation accelerated to 4.1 percent in the first quarter from 3.4 percent in the quarter earlier, pushed by tight domestic supply of most food commodities. The rate is projected to grow further going forward due to expected increases in electricity, food and oil prices as the peso continues to weaken.

    The central bank, which has been warning that it might have to tighten its monetary stance, affirmed its view that there is little room left for monetary policy to allow further growth in inflation.

    “The latest inflation projections provide implications for narrowing monetary space,” the Bangko Sentral ng Pilipinas (BSP) said, reiterating previous hints at possible interest rate hikes.

    In its latest Inflation Report, the BSP said tight domestic supply conditions were seen driving food inflation up by 5.9 percent in the first quarter as prices of most food commodities—particularly rice, meat, oils, fruits, and vegetables—were higher during the quarter.

    The report added that non-food inflation rose to 2.6 percent for the period because of higher inflation for electricity, gas and other fuels, as well as transport.

    The BSP noted that while inflation expectations remain within the full-year target 3.0- 5.0 percent for 2014, they have trended higher and are moving near the upper end of the target range for 2015.

    “The current assessment of the price environment over the policy horizon indicates that the balance of risks to the inflation outlook remains tilted to the upside, with potential price pressures emanating from pending petitions for adjustments in utility rates and from possible increases in food and oil prices,” it said.

    The forecast for mean inflation in 2014 has been raised to 4.1 percent from 3.9 percent previously, and the 2015 projection is at 3.8 percent from 3.6 percent, while the inflation forecast for 2016 is at 3.8 percent.

    However, the BSP tries to allay fears of any sharp movement in interest rates and the impact on the financial system, saying domestic demand remains buoyant, which suggests that the economy can accommodate any measured monetary policy adjustments that the central bank may implement.

    “Going forward, the BSP stands ready to deploy appropriate measures as needed to ensure sustainable, non-inflationary and stable economic growth,” it said.

    The BSP decided to keep its policy interest rates steady during its February 3 and March 27 monetary policy meetings, concluding its assessment that the future inflation path was likely to stay within the target for 2014 and 2015.

    At the same time, the Monetary Board decided to increase the reserve requirement by one percentage point effective on April 11 to help guard against potential risks to financial stability that could arise from the recent rapid growth in domestic liquidity.

    The next monetary board meeting is scheduled for May 8.

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