Power crisis seen to fuel inflation

by Paolo G. Montecillo, 14 March 2015
from Philippine Daily Inquirer

MANILA, Philippines—Consumers may be enjoying a reprieve at the moment in the form of cheap fuel, but the looming power shortage in the coming months might push prices of basic commodities back up, officials said this week.

In the minutes of its latest policy meeting, the Bangko Sentral ng Pilipinas (BSP) said price pressures could emerge from scheduled utility rate adjustments and a “possible power shortage.”

“The BSP will continue to monitor developments affecting the inflation outlook,” the BSP said in a statement.

The expected power shortage comes amid the government’s failure in the last four years to have power plants built that could substantially augment the country’s electricity supply. Dry weather as a result of El Niño may also put pressure on hydroelectric plants.

The government will be relying on a voluntary load-curtailment program wherein big companies would be asked to use their generators to ease demand from the grid.

Last month, inflation averaged 2.5 percent, inching up slightly from 2.4 percent in January but still below the midpoint of the BSP’s 2015 target range of 2 to 4 percent.

At the moment, the BSP expects risks to inflation to be broadly balanced. Problems with the energy supply would be offset by cheaper fuel and slower increases in food prices. Weaker-than-expected economic activity overseas may also keep prices of key commodities down.

The BSP’s main goal is to protect consumers’ purchasing power by keeping prices stable. This is done through interest rate movements and adjustments in policy levers than manage the country’s money supply.

“The Monetary Board is of the view that the within-target inflation outlook and robust domestic growth support keeping policy settings steady,” the BSP said. Earlier, BSP Governor Amando M. Tetangco Jr. said policy rates might be kept on hold for much of 2015.

In February, the BSP kept its benchmark overnight borrowing and lending rates at 4 and 6 percent, respectively, making it one of the few central banks in the region that have adopted a steady stance.

Amid weak economic conditions, the likes of Thailand and South Korea this week announced interest rate cuts, following in the steps of India and China.

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