BSP 2020 projection: Slight inflation hike but well within projected range

Expect prices of basic goods and services in the Philippines to inch up in 2020 as the inflation rate continued to “normalize” then ease up in 2021, according to the head of the Bangko Sentral ng Pilipinas (BSP).

Despite this, the country’s average inflation rate for 2020 and 2021 will almost certainly fall within the government’s forecast range of 2-4 percentage points, according to BSP Governor Benjamin Diokno.

Diokno said the likely inflation drivers were “volatility in international oil prices and geopolitical tensions in the Middle East.”

“Recent weather disturbances and natural hazards” would also likely have an impact on food prices, he added in a briefing.

“Uncertainty over trade policies in major economies continue to weigh down on global economic activity which could mitigate upward pressures on commodity prices,” he said.

The central bank is coming off a strong 2019 in terms of fighting inflation where it successfully managed to keep consumer prices in check, following the extreme price movements felt in 2018.

Year-to-date inflation settled well within the target range in the fourth quarter of 2019. Year-on-year headline inflation eased to 1.6 percent in the fourth quarter of 2019 from 1.7 percent in the third quarter.

This brought the year-to-date average inflation to 2.5 percent, well within the national government’s announced target range of 3 percent, plus or minus 1 percentage point for 2019.

Inflation slowed down slightly during the quarter due mainly to slower food and non-food inflation. Likewise, core inflation slowed to 2.7 percent in the fourth quarter of 2019 from 2.9 percent in the third quarter.

Two of the three alternative core inflation measures computed by the BSP also eased in the fourth quarter relative to the third quarter of 2019.

Analysts expect the central bank’s Monetary Board to cut interest rates as early as their first meeting on Feb. 6, in an effort to jumpstart economic activity, following the 5.9 percent gross domestic product growth rate for 2019.

At present, the central bank’s key interest rate — which banks use as a guide for their own commercial loan pricing — stands at 4 percent.

“The BSP will continue to monitor developments that could affect the inflation outlook and domestic demand conditions to ensure that the monetary policy stance remains consistent with its price and financial stability objectives,” said Diokno.

Edited by TSB