Faster inflation leaves little for Pinoys to save, says BSP's Guinigundo

(Updated 9:12 p.m.) Gobbled up by the unexpected 3.9-percent inflation rate in the first two months of 2011, the prevailing interest rate of 4 percent leaves households and businesses with only 0.1 percent in real interest. Bangko Sentral ng Pilipinas (BSP) Deputy Gov. Diwa Gunigundo on Tuesday remarked, "The real interest rate environment is still positive, but is the differential still sufficient to provide macroeconomic stability?" Explaining that the BSP will take this up in the Monetary Board’s March 24 meeting, Gunigundo is concerned about the uphill trend in oil and commodity prices, which the government expects to continue in the wake of social unrest plaguing the Middle East and North Africa. The inflation rate of 4.3 percent in February surprised the BSP, after the bank had earlier pegged the monthly inflation at 3 to 4.1 percent. In the past month, the country also posted its highest inflation rate in three quarters. The BSP pointed at the risings costs of housing and food as the main drivers of inflation so far in the year. A month ago, the BSP bared a 3.5-percent January inflation rate, with Gunigundo saying the country is "enjoying" a positive real interest rate of 0.50 percent. The BSP then said the positive real interest rate prods Filipinos to save – unlike households and businesses in countries like the United States, the United Kingdom, Singapore, South Korea, and Thailand that have lost the compulsion to save because of negative real interest rates. New York-based think-tank Global Source said the Philippines will likely breach its 3-percent to 5-percent inflation target for 2011, "especially if second-round effects set in as supply-side pressure continues." Because of rising commodity prices worldwide, Philippine inflation could exceed 5 percent this year, United Kingdom-based Standard Chartered Bank also said last week. "Inflation is relatively mild at this point but it will trend up in the coming months as oil and food prices go up," Standard Chartered research head Nicolas Kwan said. — With Paterno Esmaquel II/VS, GMA News