BSP ups 2011 inflation forecast, eyes 2012 average at 2.97%

Aug 27, 2010

MANILA – The Bangko Sentral ng Pilipinas (BSP) has slightly revised upward its 2011 average inflation forecast to 3.25 percent and 2.97 percent for 2012. BSP earlier projected 2011 inflation to average at three percent while the inflation target for 2012 to range from three to five percent, the same with 2011 and 2013-14. BSP Deputy Governor Diwa Guinigundo said among the factors for the upward adjustment in the average forecast for next year’s inflation was the increase in the price of oil products both in the domestic and international market.

The other factors are stronger growth of the domestic economy and of domestic liquidity (M3). The National Statistical Coordination Board (NSCB) on Thursday morning said the economy, as measured by gross domestic product (GNP), grew 7.9 percent during the second quarter this year. This level was far higher than the 1.2 percent same period last year, the 5.9-6.9 percent projection of the National Economic and Development Authority (NEDA) for the quarter, as well as the revised 7.8 percent output in the first three months this year.

Guinigundo said the increase in investment helped boost the robust performance of the domestic economy in the second quarter this year and in turn contributed in the productive capacity of the economy. “The productive capacity of the economy is expanding and has the effect of muting the effect of any additional price pressure,” he said.

The BSP executive said the convergence of higher GDP growth and the slower inflation rate made monetary officials continued to believe that policy stance of the BSP remained appropriate. Inflation last July remained steady at 3.9 percent as that of the previous month from 4.3 percent two months ago. Monetary officials said there was still a possibility that inflation rate for this year may increase on account of the rainy season but full-year figure would remain within target. The central bank forecast inflation to stay within 3.6-4.5 percent this month.

Relatively, M3 grew by 10.3 percent last June, lower than the previous month’s 10.7 percent but is still at double digit. Monetary officials earlier said they were comfortable with a 10-12 percent M3 growth for the country. Tetangco said possible hikes in fare rates of the Metro Rail Transit (MRT) and the Light Railway Transit (LRT) as well as implementation of the 12 percent value added tax (VAT) on toll fees were also factored in the increase in their 2011 average inflation forecast. “But again the impact is very slight,” he added.

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