BSP Closely Monitoring Russia-Ukraine Conflict and Its Potential Effect on PH Inflation

The Bangko Sentral ng Pilipinas (BSP) is keeping a close watch on the ongoing conflict between Russia and Ukraine as it crafts the country’s monetary policy, particularly as it has the potential to upend inflationary expectations, according to BSP Governor Benjamin Diokno. With this, the institution continues to “remain vigilant against its impact on the Philippines’s inflation outlook,” he added.

“While spillovers from the Ukraine-Russia conflict will likely be limited given our lack of close economic linkage with the two countries, its impact through the commodities channel could pose upside risks to domestic inflation,” Diokno elaborated further. Earlier in April, consumer price index (CPI) spiked to 4.9% — marking the highest acceleration in three years — with transport inflation accounting for a majority of the increase as fuel prices soared.

In an effort to mitigate the potential impact of the conflict, the national government has since implemented direct non-monetary measures, to which the BSP has expressed its full support. “With energy and transport-related items directly accounting for about 14 percent of the Consumer Price Index or CPI basket, a sustained increase in domestic oil prices may result in a disanchoring of inflation expectations,” said the BSP Governor. “This could lead to second-round effects on transport fares, food prices, and higher-than-expected wage adjustments, and further dampen domestic demand.”

“First, higher jeepney fares are a potential source of second-round effects from higher oil prices,” explained Diokno. “Various transport groups have filed for a nationwide increase in the minimum jeepney fare to the Land Transportation Franchising and Regulatory Board ranging from ₱1.00 to ₱6.00.”

“Second, food prices could also accelerate if the higher transport costs are passed on to consumers,” he continued. “Food items account for 34.8 percent of the CPI basket while restaurants and accommodation services are 9.6 percent of the basket.” Despite the measures that have been implemented by the government, the BSP has affirmed that it is prepared to act should the country’s inflation expectations be derailed. Fairly recently, the central bank has raised the inflation forecast for 2022 from 4.3% to 4.6%  while the CPI has also been projected to reach 5% in the coming months.

Source: BusinessMirror, ABS CBN