Government maintains inflation target range at 3 percent for 2022-2024

During the Development Budget Coordination Committee (DBCC) meeting held on December 14, 2021, the DBCC in consultation with the BSP, decided to retain the current inflation target range at 3.0 percent ± 1.0 percentage point (ppt) for 2022-2024.

Under the inflation targeting framework for monetary policy, the target is defined in terms of the average year-on-year change in the consumer price index (CPI) over the calendar year. This announcement of the medium-term inflation target is in line with the BSP’s commitment to transparency and accountability as well as the forward-looking approach in the conduct of monetary policy.

The inflation target range of 3.0 percent ± 1.0 ppt continues to be an appropriate quantitative representation of the medium-term goal of price stability given the current structure of the economy and outlook for macroeconomic conditions over the next few years.

On the demand side, the economic recovery continues to be robust but the economy is likely to operate below its full capacity in the near term, implying limited demand-pull price pressures.

Nonetheless, domestic recovery is expected to gain traction over the medium term, underpinned by intensified government vaccination program, calibrated relaxation of mobility restrictions, along with the expected pick up in external demand.

Low and stable inflation—as represented by the inflation target—remains supportive of the ongoing recovery process and the attainment of the goal of sustainable and balanced growth.

On the supply side, global commodity prices particularly of oil and food, are expected to moderate over the medium term following the recorded sharp increases in 2021. It should be noted, however, that considerable risks continue to surround the prospects for global commodity prices.

Taking these factors into consideration, the BSP’s baseline forecasts indicate that inflation could remain within the current target of 3.0 percent ± 1.0 ppt for 2022-2024. Inflation expectations likewise remain well anchored to the target.

While protracted dislocations in the global supply chains could keep inflation elevated in the near term, the prevailing view is that the medium-term outlook would still likely be driven by fundamentals, supporting the decision to keep the current inflation target unchanged for 2022-2024.

Going forward, the BSP will continue to monitor closely price developments and stands ready to adjust its policy settings as needed to keep inflation within target.