Wage hike, oil shocks complicate inflation fight

Twin shocks from a steep wage increase and renewed volatility in oil prices and the foreign exchange market threaten to complicate the Bangko Sentral ng Pilipinas’ fight against inflation, New York-based GlobalSource Partners said.

It said that a credible monetary policy stance will be critical to keeping inflation expectations anchored.

In a commentary, GlobalSource economist Diwa Guinigundo said the dual pressures could delay inflation’s return to the BSP’s 3-percent target, adding that monetary policy alone would not be enough and must be complemented by broader government action to contain the price hikes.

“The policy challenge confronting the BSP is therefore no longer confined to a single inflation source,” Guinigundo wrote. “These forces may reinforce one another, making inflation more persistent and more difficult to bring back within target.”

Inflation eased to 6.4 percent in June as fuel price increases moderated after global oil markets stabilized following a ceasefire between the United States and Iran. Food inflation also slowed as increased rice imports helped temper price gains.

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But renewed fighting in the Middle East has triggered another surge in global energy prices this month—hitting energy-importing economies like the Philippines. The re-escalation of conflict also put fresh pressure on the peso, which has again approached its record low of 61.75 against the dollar.

At home, the BSP is also watching the potential inflationary impact of an P85 daily wage increase for workers in Metro Manila.