Bangko Sentral ng Pilipinas Governor Benjamin Diokno said Thursday monetary authorities are continuously on the lookout for possible second-round effects of inflation rate, especially with the highly uncertain future of oil prices amid the health crisis and uneven economic recovery.
Diokno said in an online briefing the global oil demand outlook was rising steadily as many countries gradually recovered from the pandemic. The production limits imposed by the Organization of Petroleum Exporting Countries Plus also contributed to rising oil prices in 2021.
"The combination of these factors have pushed oil prices higher in 2021 relative to the previous year’s levels," Diokno said, adding that in April, the spot price of Dubai crude oil—a benchmark for Asian countries like the Philippines—hit$62.32 per barrel, more than double the price a year ago.
"This can have implications on inflation in the near term. As a net oil importer, the Philippines closely monitors global oil price movements. Historically, a rise in global crude oil prices tends to be associated particularly with higher transport inflation rates as seen on this chart," Diokno said.
Transport inflation increased to 17.6 percent year-on-year in April on higher domestic pump prices. The increased transport inflation was also affected by elevated transport fares, particularly following the fare increases for tricycles.
Data showed that transport inflation contributed about 1.4 percentage points to headline CPI inflation in April, and was considered the main driver of higher non-food inflation in recent months.
Diokno said the BSP already factored the recent uptrend in global oil prices into its latest baseline inflation projections which showed a target-consistent inflation path over the policy horizon.
The Monetary Board, in its May 12 policy meeting, reduced the inflation forecast for 2021 to 3.9 percent from 4.2 percent made in the March 2021 meeting. For 2022, the forecast was slightly raised to 3 percent from 2.8 percent.
Diokno said the latest baseline forecasts indicated that inflation could settle close to the high-end of government’s target range of 2 percent to 4 percent for 2021 at 3.9 percent and at the midpoint of the target for 2022 at 3 percent.
“Nevertheless, the BSP will continue to monitor and update its outlook for the path of inflation which remains highly uncertain given evolving developments related to the pandemic and vaccine rollout,” he said.
Diokno said central banks typically accommodate commodity price increases as they tend to be transitory in nature. However, the impact of global demand-supply imbalances on oil prices may become more persistent and could potentially lead to second-round effects in oil-importing economies, he said.
The rebound in global oil prices was felt in higher prices of domestic petroleum products. This, in turn, contributed to the steady increase of non-food inflation on a year-on-year basis.
"Accordingly, the BSP remains on the lookout for possible second-round effects that may require a monetary response, even as underlying inflation and the overall inflation outlook remains manageable in the Philippines due to the amount of prevailing slack in the domestic economy," Diokno said.
Inflation in April was steady at 4.5 percent, the same rate in March, bringing the first four months' average to 4.5 percent. Inflation averaged 2.6 percent in 2020.