Inflation forecasts hiked, legislative measures urged
Banking giant HSBC has raised its 2018-2019 inflation forecasts for the Philippines following August’s nine-year high, accompanying this with a warning that monetary policy tightening was not enough to mitigate above-target consumer price growth.
Legislative action, it said in a report released on Thursday, is “necessary” and the government should also consider temporary subsidies after inflation surged to 6.4 percent last month.
HSBC said it now expected inflation to average 5.2 percent and 4.5 percent in 2018 and 2019, respectively, from 4.7 percent and 3.8 percent previously. The bank’s forecasts are higher than the Bangko Sentral ng Pilipinas’ (BSP) 2.0-4.0 percent target for both years.
Year-to-date inflation currently stands at 4.8 percent. The BSP’s policymaking Monetary Board last month raised its inflation forecasts for 2018 and 2019 to 4.9 percent and 3.7 percent, respectively, from 4.5 percent and 3.3 percent previously. It also issued a 3.2 percent forecast for 2020.
Above-target inflation March has prompted monetary authorities to raise key interest rates by a total of 100 basis points since May. August’s result has raised the prospect of another rate hike when the Monetary Board meets later this month.
HSBC emphasized that “monetary policy is not enough and that legislative measures must also be implemented to curb inflation.”
“[P]assing reforms to eliminate quantitative restrictions on rice imports and reducing import tariffs on certain food products, as have been proposed to Congress, are necessary,” it added.
It also noted that another measure that could help ease inflationary pressures, especially for the poor, are temporary subsidies for certain food products.
The lender warned that “continually higher inflation could threaten growth by way of curbing consumption and investment, as it prompts further monetary tightening” from the central bank.
Monetary authorities will have to continue tightening, it said, to curb inflation expectations and limit any second-round impacts from higher prices.
HSBC is also seeing “some incipient signs” that inflation may be broadening to other sectors of the economy
“We first saw signs of this in July, when prices in almost every single CPI (consumer price index) component, with the exception of education, rose at an above-trend pace,” it said.
The bank also noted that in August, CPI components for recreation and culture as well as restaurants and miscellaneous goods and services also rose at an above-trend pace.
“This means that the BSP must now continue to further tighten monetary policy, whether or not the government is able to impose administrative controls on prices, to avoid broad-based price increases,” it added.
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