Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno has noted that inflation or price pressures remain manageable despite the 9% contraction of the country’s economy in the first half of 2020 due to the pandemic.
Diokno, in his presentation during the Senate’s recent hearing on the proposed 2021 national budget, cited the 16.5% negative output, as measured by gross domestic product (GDP), in the second quarter this year, deeper than the 0.7 percent in the first quarter.
He said strict movement restrictions implemented by the government to contain the Covid-19 spread has affected the economy. “Nevertheless, price pressures remain manageable,” he assured.
The average rate of price increases in the first eight months 2020 stood at 2.5%, at the lower half of the government’s 2-4% target band from 2020-2022.
“If we compare domestic inflation with other countries, the prices of consumer goods and services in a typical Filipino basket are rising at a healthy pace,” he noted.
High inflation rate is detrimental to the economy since “it erodes the purchasing power of households and discourages investments,” Diokno explained. He said, however, that deflation is similarly bad “as consumers and investors will lose the incentive to spend and invest.”
“Such behavior dampens economic activity which results in higher unemployment,” he added. Philippine monetary officials forecast inflation to average 2.6% this year, 3% in 2021, and 3.1% in 2022.
Diokno said inflation is projected to “remain manageable for the rest of the year and to settle within the inflation target range over the policy horizon.”