Bank economists see within-target inflation until 2021

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BANK ECONOMISTS expect inflation to remain broadly within target this year and until 2021 amid downward pressures to the outlook, according to results of a recent central bank survey.

A poll of 26 private sector economists tapped by the Bangko Sentral ng Pilipinas (BSP) yielded a median inflation forecast of 3.2% for 2019, according to its first-quarter inflation report published Friday, slightly higher than the central bank’s full-year projection of 3% and well below 2018’s 5.2% average.

This also falls within the BSP’s 2-4% target range for the year.

The general increase in consumer prices is expected to pick up slightly to average at 3.3% in 2020 and then ease back to 3.2% in 2021, the economists’ median forecasts showed. Both are also within the government’s 2-4% inflation target for those years, although the 2020 forecast is above the central bank’s own estimate of 3%.

“Analysts expect inflation in 2019 and 2020 to settle within the target range, with downward pressures seen to dominate the risks to the inflation outlook,” the report said.


The report said possible downside risks to inflation include the implementation of the rice tariffication law, which is expected to improve domestic rice supply and stabilize prices, and lower global crude oil prices.

“On the other hand, the key upside risks to inflation are seen to emanate from adverse weather conditions such as El Niño, volatile global oil prices and foreign exchange market, possible policy rate cut by the BSP, higher domestic demand due to the upcoming midterm elections and school enrollment, and higher electricity rates,” the report said.

Headline inflation eased for the fifth straight month to 3.3% in March, down from 3.8% in February and 4.3% in the same month last year. Year-to-date, inflation is at 3.8%.

At its March 21 policy meeting, the BSP kept benchmark interest rates unchanged within the 4.25-5.25% range, citing the need to stay cautious given risks to economic growth even as inflation is steadily dropping.

“This outlook that we are showing as of March monetary policy meeting is a picture not much of inflation bottoming out but inflation normalizing towards the target,” BSP Department of Economic Research Director Dennis D. Lapid said in a briefing on Friday.

BSP Governor Benjamin E. Diokno said in the same briefing that a prolonged El Niño, along with steadily rising crude oil prices, could cause commodity prices to spike.

This means the BSP cannot simply loosen its monetary policy despite the current downtrend in inflation, he said.

“The BSP knows that further risks can emerge from prolonged El Niño weather condition and higher than expected increasing global oil and food prices. For 2020, the risks lean toward the downside amid slowdown in global economic activity,” Mr. Diokno said.

“Thus, the BSP will remain data-driven at all times in our policy decision-making and our actions will be determined by our inflation outlook. The BSP remains focused on safeguarding and promoting price stability conducive to a balanced and sustainable economic growth,” Mr. Diokno added.

Mr. Diokno also noted that crude oil prices have been steadily rising due to extension of production cuts by petroleum exporting countries, supply disruptions in Libya, and sanctions imposed by the United States on Valenzuela and Iran.

“On balance, therefore, our prevailing monetary policy stance remains appropriate, given the confluence of easing inflation and firm growth dynamics. The BSP continues to gauge the impact of its monetary policy responses on domestic economic conditions to ensure that inflation remains on track toward the government’s target of 2-4% and that inflation expectations remain anchored,” Mr. Diokno said.

Sought for comment, Rizal Commercial Banking Corp (RCBC) Economist Michael L. Ricafort told reporters: “There may be some upside risks which are practically supply side driven like higher oil prices… We have to note that for food prices, the monetary measures of the government are always there since last year. They can always increase importation and we have yet to see the good effect of the rice tariffication.”

“Realistically, as early as May 9, it is very much possible to see a cut on policy rates on the overnight rates of the BSP,” Mr. Ricafort added. — R.J.N. Ignacio