Philippines Report

Inflation seen to prompt slight rollback of monetary stimulus

Think tanks are seeing inflation as a potential top concern for policymakers in emerging economies, including the Philippines, with at least one projecting rising prices as impetus to roll back some of last year’s monetary stimulus.

The country, together with Mexico, Russia and Brazil are considered “most at risk of seeing some near-term challenges for policymakers as inflation remains elevated,” Fitch Solutions said in a report. Oxford Economics, in a separate report, said food prices and weaker currencies are “main threats” that can fan inflation.

For Fitch Solutions, this means that rising prices of basic goods and commodities would leave the Bangko Sentral ng Pilipinas (BSP) with no choice but to raise policy rates by 25 basis points to 2.25% this year. The projected hike, however, remains lower than that seen for Brazil at 100 bps as Fitch noted that price increases are largely contained on food.

“Inflation may become more of a concern over the coming months as the global economic recovery builds, base effects kick in and commodity prices remain elevated,” Fitch Solutions said.

“In the Philippines, African swine fever has pushed up food prices, but there is little sign of a broad-based rise in inflation,” it added.

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