Economists see faster inflation in 2016

Economists see a faster uptick in inflation this year on the back of expectations of a weaker peso as well as further interest rate hikes of the US Federal Reserve, results of a Bangko Sentral ng Pilipinas survey showed.

In the BSP’s survey of private sector economists for December 2016, average inflation forecasts for 2017 and 2018 were raised to 3 percent and 3.1 percent respectively, from 2.7 percent and 2.8 percent during the survey last September.

“For 2017, the respondents assigned a 77.1-percent probability that inflation will fall within the 2-4 percent target range,” the BSP said in a report.

According to the BSP, “analysts attributed their higher inflation expectations to a weaker peso, higher global oil prices, robust domestic demand, and increased probability of further Fed rate hikes.”

“The increase in the mean inflation forecast was also driven by the recent uptick in domestic fuel prices and its impact on housing and transport inflation as well as possible effects on prices of the proposed tax reform measures, along with higher government spending,” the BSP added.

“These were seen to outweigh the downside risks brought by the slowdown of the Chinese economy and the yuan devaluation, as well as the risk of recession and deflation in Japan and the Eurozone,” according to the BSP.

The BSP’s latest survey of private sector economists was conducted among 26 analysts between Dec. 7 and 29.

The BSP forecasts inflation to accelerate to 3.3 percent this year after settling last year at 1.8 percent, below the government’s 2-4 percent annual target in the medium term.

Last week, BSP Deputy Governor Diwa C. Guinigundo said that initially, they computed an additional 0.4-0.5 percentage point increase in the inflation rate this year if ever the plan to impose higher excise tax rates on fuel as well as vehicles pushes through.

“Basically, if that’s the case, that’s the upper end of the target. We need to assess how monetary policy can respond to these changes. But remember: this is a one-off development,” Guinigundo said. —BEN O. DE VERA