Potential wage, fare increases watched

ABS-CBN News

Posted at Jun 24 2008 02:14 AM | Updated as of Jun 24 2008 10:14 AM


BusinessWorld

The recent adjustment on wages and transport fares were within government projections, but potential increases are being monitored for their inflationary pressures, a central bank official said.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said the P20 wage hike in the National Capital Region was below economic managers’ assumed adjustment of P25.

However, he said the Monetary Board would be prepared to act preemptively, given that consumers’ expectations of higher fuel and food prices may stoke clamor for further wage hikes.

"We have already anticipated the wage hike, but we want to be preemptive so that [our policy will be accommodative] of further wage hikes," Mr. Guinigundo told reporters yesterday.

He also said the recent quarter-point hike of the Monetary Board in its key policy rates was anticipatory, meaning it should be able to "take care of the additional wage adjustment."

The second quarter Consumer Expectations Survey of the BSP showed that more Filipinos expect that their spending on fuel and food will rise in the next 12 months, hence, the possibility of new demand for wage and transport fare hikes.

"If the wages are up, then the cost of production will rise. It’s the same in transport fare adjustments. If transport costs go up, transport of goods and services will also rise," Mr. Guinigundo explained.

The Monetary Board decided to raise its key policy rates by 25 basis points (bps) in its meeting last June 5, noting that demand has started to feed inflation in the wake of wage and transport fare adjustments.

Inflation hit a nine-year high of 9.6% in May, and monetary authorities said it could peak at 10%-11% in the third quarter before it eases towards yearend.

Monetary authorities have said that the recent quarter-point hike should be enough to counter inflationary pressures for now, given that "second round effects" spilling over from fuel and food to wages and transport fares have only just started.

However, they signaled a possibility of further tightening of policy in the coming months given the expectations that the inflation rate will rise further.

At the same time, they said the economy should be able to absorb the higher interest rates, as domestic demand remains strong.

Meanwhile, Dutch banking giant ING expects the central bank to raise its key policy rates by 75 bps within the second half to end the year, taking its cue from BSP Governor Amando M. Tetangco, Jr. when he said that the Monetary Board is prepared to further raise its rates to curb inflation and maintain price stability. ING also expected the yields of fixed-rate treasury notes to rise. It expected the yield of five-year benchmark to rise to 9.5% from its current level of 8.5228% with-in the next three months, which could mean that yields in the secondary market will continue with an upward bias. — Gerard S. dela Peña