Medalla: Inflation gearing up to be above target for historic 18 months

While inflation has decelerated for the past five months, consumer prices are expected to continue climbing faster than the government’s target range and longer than previously recorded.

This was according to former Bangko Sentral ng Pilipinas (BSP) governor Felipe Medalla, as he cited the need for a discussion on a whole-of-government approach to address local supply shocks.

“Mahirap talaga ‘pag mataas ang inflation. Itong pinakahuling inflation, ibe-break nito ang record sa number of consecutive months na above target,” Medalla said in The Mangahas Interviews.

“In the past, marami na ‘yung 15 months straight na above target… Sa forecast namin, baka October pa bago mag-below 4 (percent) which means 18 straight, consecutive months dire-diretso na mas mataas kaysa 4% na ating target ‘yung inflation,” he added.

(It is really difficult if inflation is high. The latest inflation print will break the number of consecutive months that it will be above target.

In the past, 15 straight months above the target was already a lot. Based on our forecast, inflation could only slow to within the target range by October which means 18 straight, consecutive months that inflation would be above our 4% target.)

The BSP is expecting inflation to decelerate to the target range of 2% to 4% by October. If realized, this would bring inflation above the target range for 18 straight months, beating the previous record of 15 consecutive months.

Inflation clocked in at 5.4% in June, bringing the print above the target range for the 15th straight month after the 4.0% print recorded in March 2022.

Under its mandate, the BSP counts price stability as one of its three pillars, along with banking stability and the safe and secure payments and settlement system. To address inflation, it deploys three tools — policy rates, foreign exchange intervention, and the control of liquidity.

The Monetary Board of the BSP has already hiked key policy rates by 425 basis points since May 2022, with the latest being a 25-basis point increase that took effect on March 23 to bring the benchmark rate to 6.25%.

Meanwhile, liquidity has grown at a steady pace as M3 — the broadest measure of money in the financial system — stood at P16.284 trillion in May, 0.2% higher than the P16.256 trillion in April, and 6.6% higher than the P15.276 trillion in May 2022.

“Simple as those three tools are, it has kept the record at most 15 months na above target,” Medalla, who left his post as BSP governor earlier this week, said.

“In other words, talagang nandiyan ang tools ng central bank, but kailangan magkaroon din tayo ng discussion as a nation paano ba natin poprotektahan ang ating mga farmers,” he added, with food being a major driver of acceleration.

(In other words, the tools of the central bank are really there, but we also need to discuss as a nation how we will protect our farmers.)

Local production has been a major issue, with President Ferdinand “Bongbong” Marcos Jr. calling on increased production to keep inflation down. He also ordered the creation of an inter-agency committee on inflation in May.

Medalla said this was a step in addressing inflation, but debates have stalled progress as the stakeholders voiced their opposition to increasing imports to address the supply issues in the country.

Moving forward, Medalla said there is a need to continue discussions for the government to curb inflation on top of the steps already taken by the BSP.

For his part, newly-installed BSP Governor Eli Romolona said the Monetary Board is likely to consider cutting rates within the year should inflation fall to 4%. —KBK, GMA Integrated News