BSP statement on the medium-term view on inflation
The January 2021 inflation of 4.2 percent was higher than the BSP’s forecast range of 3.3 – 4.1 percent. Nonetheless, the latest outturn is consistent with the BSP’s prevailing assessment of a transitory uptick in inflation in H1 2021, reflecting largely supply-side pressures related to the African Swine Fever (ASF), weather-related disturbances, higher global oil prices, along with positive base effects. Average inflation is still seen to settle within the 2-4 percent target range over the policy horizon.
The projected uptrend in inflation is seen to be temporary. The sources of near-term inflation pressures are supply-side shocks in nature that should not require a monetary policy response unless they lead to further second-round effects. At the same time, supply-side shocks are best addressed by non-monetary interventions that ease domestic supply constraints. Currently, direct measures are being pursued by the National Government to enhance the availability of affected commodities.
The Monetary Board will consider recent price developments, particularly in global commodity markets, along with the Q4 2020 GDP outturn in its assessment of the monetary policy stance in its meeting on 11 February 2020. The BSP stands ready to deploy its full arsenal of instruments as needed in fulfillment of its mandate to maintain price and financial stability conducive to sustainable economic growth.