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Private economists hike inflation forecast

Price increases seen to average 3.4% this year, 3.5% in 2018
By: - Reporter / @bendeveraINQ
/ 12:23 AM April 24, 2017

Economists polled by the Bangko Sentral ng Pilipinas (BSP) raised their inflation forecasts for this year to an average 3.4 percent from 3 percent previously on the back of the peso’s depreciation during the first quarter as well as rising oil prices.

The results of the BSP’s survey of private sector economists last March also showed that their mean inflation forecast for 2018 rose to 3.5 percent from 3.1 percent during the previous poll in December.

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Across the 30 respondents, the BSP said the higher inflation projections were mainly attributed to a “weaker peso, persistently high global oil prices, the implementation of tax reform (including higher fuel and vehicle excise taxes), rise in electricity rates due to higher oil prices and maintenance shutdown of some power plants, and higher government spending on infrastructure.”

The peso slid to a more than 10-year low level of 50.10 to $1 in mid-February, although it has returned to the 49:$1 level since April 10.

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In its inflation report for the first quarter, the BSP said that on a quarter-on-quarter basis, the peso weakened by 1.79 percent to average 50:$1 from the previous quarter’s average of 49.11:$1.

Likewise, on a year-on-year basis, the peso depreciated by 5.45 percent relative to the 47.28:$1 average in the first quarter of 2016, the BSP added.

“The weakening of the peso during the [first] quarter was due mainly to the following developments: The US Fed rate hike in March and the expectation for more and faster rate increases in 2017; persisting political noise in Europe, and strong US dollar requirement by domestic corporates,” the BSP said.

According to the BSP, private economists also raised their inflation forecasts due to the possible occurrence of El Niño in the latter part of 2017 as well as a transport fare increase as a result of higher oil prices.

“These were seen to outweigh the downside risks brought by a possible return to low global oil prices, 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.

Headline inflation rose 3.4 percent year-on-year in March, the fastest rate of increase in the prices of basic goods in 28 months.

Inflation averaged 3.1 percent in the first quarter, a little past the midpoint of the government’s 2 to 4 percent target range for 2017. In contrast, the average inflation rates during the past two years were both below 2 percent.

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The BSP expects further monthly inflation upticks until the third quarter.

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TAGS: Bangko Sentral ng Pilipinas (BSP), Business, economy, Inflation, inflation forecast, Price
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