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El Niño dry spell seen to trigger higher inflation

The El Niño dry spell is one of the risks that may trigger faster inflation rate this year, the policy-making Monetary Board of the Bangko Sentral ng Pilipinas said.

The board said in the highlights of its March 21 policy meeting the risks to future inflation were expected to remain evenly balanced for 2019, while downside risks to the outlook were projected to dominate in 2020. 

“Petitions for electricity rates and transport fare adjustments, the proposed increase in the excise taxes on alcohol beverages and the potential impact of a weak El Niño episode are the main upside risks to inflation,” the board said.

“Meanwhile, slower global economic growth due to protectionist policies in advanced economies as well as geopolitical tensions and the potential renegotiation for lower tariff rates on meat products continue to be the main downside risks to inflation,” it said.

Latest government data showed that as of April 14, agricultural losses due to El Niño dry spell reached P5.7 billion.

The Monetary Board’s latest baseline inflation forecasts showed that inflation would continue to ease, with average inflation for 2019 and 2020 projected to settle within the 2 to 4 percent target range.

Meanwhile, Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo asked bank economists and market analysts to become more careful in suggesting monetary policy easing after inflation slowed to 3.8 percent in the first quarter.

“I hope the banks and market analysts will be able to enhance their assessment before they ask the BSP to immediately ease monetary policy when the January-March 2019 inflation at 3.8 percent has barely found itself in the target groove again,” Guinigundo said in a message to reporters.

Guinigundo said that despite the slowdown, inflation expectations were still close to the upper end of the target range of 2 percent to 4 percent.

He said that any tightness in liquidity situation was temporary and would soon normalize after the Holy Week and the tax season. Julito G. Rada

“As to domestic liquidity, M3 to GDP ratio continues to increase which indicates that we have ample liquidity to accommodate the requirement of economic growth,” he said.

Topics: El Niño , dry spell , higher inflation rate , Monetary Board , Bangko Sentral ng Pilipinas , BSP
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