Economists temper inflation expectation

BANK ECONOMISTS’ expectations for inflation for 2019-2021 have eased, according to results of a second-quarter survey of the Bangko Sentral ng Pilipinas (BSP).

The forecasts of 27 private economists in June yielded a three percent median, lower than the 3.2% seen in the March survey. That compares to the central bank’s 2.7% inflation forecast for the year and lies at the midpoint of its 2-4% target band for 2019

Last Thursday, the Development Budget Coordination Committee said that it has revised its 2019 inflation assumption downward to 2.7-3.5% this year, from 3-4% as of March 2019.

“Analysts expect inflation to remain manageable and within the government’s target range, with risks to the inflation outlook likely to be broadly balanced,” the BSP said in a statement.

The BSP cited risks to inflation as adverse effects of the El Niño-induced dry spell on food supply, potential impact of African Swine Fever on domestic food prices, volatile global oil prices, higher domestic demand in the last quarter due to the holiday season, weaker peso against the US dollar and bigger state infrastructure spending.

Downside pressures could come from continued implementation of steps to unclog food supply bottlenecks, continued easing of rice prices after importation of the staple was liberalized in February and actions taken to mitigate El Niño’s effects and a possible easing of oil prices.

The BSP survey bared a 94.6% probability that average inflation will settle at 2-4% this year.

At the same time, the median of economists’ inflation forecasts for 2020 and 2021 dipped to 3.2% from 3.3% previously and to three percent from 3.2%, respectively.

The BSP reported last week that headline inflation slowed to three percent last quarter from the 3.8% seen in January-March.

“Inflation continued to ease during the quarter due to the significant deceleration in food inflation amid sufficient domestic food supply,” the BSP had said.

In the face of slowing inflation, the BSP in May cut benchmark interest rates by 25 basis points (bp) and banks’ reserve requirement ratio by 200 bp. — RJNI