no more higher than high

by Jun Vallecera / Reporter

(Business Mirror, 11.20.08

WHAT could be the season’s good news of the Bangko Sentral ng Pilipinas (BSP) is that inflation would not likely rise any higher in the next few months now that money-supply growth has returned to double-digit territory.

BSP Governor Amando Tetangco Jr., at the sidelines of ceremonies honoring the year’s most productive microentrepreneurs, even has a titillating forecast—that inflation would move back to 9 percent in November and December, saying, “It is possible.”

Headline inflation, the important data for housewives because it tells them how prices of their household needs are moving, has moved back to 11.2 percent in October from 11.8 percent in September as prices of food, fuel, transport fares and communications services retreated in the last price survey of the National Statistical Office.

The price retreat came at a time when money-supply growth, at one time in the recent past deliberately kept at a low single-digit rate to curb its inflationary impact, surged right back to double-digit level again.

“At this point, given what is happening overseas and the possible impact of foreign developments on the Philippines, it is important we maintain a sufficient amount of liquidity. At this point this level of M3 growth is appropriate,” said Tetangco of the
high-flying aggregate that forced the BSP to recognize losses.

This was the reason the Monetary Board has thus far adopted four liquidity-enhancement measures meant to flood the system with enough cash that entrepreneurs could use for productive undertakings.

Actual or core inflation in the first 10 months had averaged 9.4 percent, well within forecast of 9 percent to 11 percent this year. This is measured by factoring in all prices except those of volatile food and fuel.

The return of double-digit M3 growth rate has raised the question of whether monetary authorities have given up some control in exchange for optimum growth potential.

The shift appeared to be mandated chiefly by external developments since the country’s main trading partners, particularly the United States and European Union countries, are on track toward recession, with Germany and Japan, another major trading partner, already in that situation.

A significant part of the country’s output is generated by exports to countries most heavily affected by the global financial turmoil that started in the US, which has now expanded into the world and now threatens growth everywhere, the Philippines included.