BSP wary of inflationary impact of oil prices
The Bangko Sentral ng Pilipinas (BSP) said it was monitoring the markets for possible second-round effects resulting from the rise in oil prices, in particular their impact on inflation, although it called a such an unlikely event in the short term.
The central bank’s Monetary Board has factored in the effect of rising oil prices in its latest inflation forecast for the year, but will remain vigilant if a monetary response is needed, the BSP governor said on Thursday. , Benjamin E. Diokno.
“The rise in oil prices with the recovery of global demand will require greater vigilance on the part of the monetary authorities. In the Philippines, underlying price pressures remain moderate given the slowing domestic economy. However, BSP remains on the lookout for possible second round effects, ”he said.
As central banks have anticipated rising oil prices as global demand picks up as supply remains tight, Diokno warned the impact could become “more persistent” and lead to second-hand effects. turn on oil importing countries like the Philippines.
Headline inflation remained unchanged at 4.5% in April after the rate of increase in food prices slowed.
Any increase in crude oil prices could affect goods and services in the Philippines through transportation costs and other energy-related items in the Consumer Price Index (CPI), according to Diokno.
Price hikes for tricycles and e-bikes have recently fueled inflation due to the dearth of other transportation options during the pandemic.
“(An) example of the second round effects of higher oil prices could be the demand for higher transportation costs, which I don’t think is likely to happen (given) the slowing economy. ”Mr. Diokno said.
Transportation prices rose 17.6% year on year in April and represented 1.4 percentage points of headline inflation that month.
The energy-related CPI, which includes transportation tariffs and petroleum products, accounted for 8.3% of the CPI count, with all of its components more than doubling last month from March levels, after that the benchmark of Dubai crude hit $ 62.32 per barrel in April, doubling its year. previous level.
The economic team predicts that Dubai crude, a benchmark for oil transported to Asia, will trade between $ 50 and $ 70 per barrel in 2021-2024.
Despite the oil risk, BSP monetary policy sub-sector manager Dennis D. Lapid said short-term inflation is still expected to stay in line with the central bank’s projection of an average CPI. 3.9% this year and 3% next. year.
“(Based on our) simulations of different levels of world oil prices … even with further increases in oil prices, headline inflation will still slow within the target for next year,” a- he declared.
Mr Lapid said subdued domestic demand could mitigate possible second-round effects from rising oil prices.
The central bank aims to keep inflation between 2-4% each year until 2024. – Beatrice M. Laforga