Gov’t raises inflation forecast to 3.7%-4.7% in 2022

The Bangko Sentral ng Pilipinas (BSP) is expected to again raise its key policy rate in June, this time by as much as 50 basis points as the government’s team of economic managers raised their forecast for average inflation in 2022.

The Development Budget Coordination Committee (DBCC) on Tuesday said inflation was now expected to be within the range of 3.7 percent to 4.7 percent, which breaches the upper end of the target band of 2 percent to 4 percent.

The DBCC comprises the departments of budget and of finance, and the National Economic and Development Authority. The BSP is also represented as a resource of macroeconomic insight.

Following a meeting on May 24, the DBCC said in a press briefing the inflation forecast range was raised considering the uptick in prices of food and energy caused by ongoing geopolitical tensions from the Russia-Ukraine conflict and disrupted supply chains.

Even then, the inflation forecast for 2023 remained at 2 percent to 4 percent, and also applied to 2024 and 2025.

The revisions are “consistent with the latest forecasts of other agencies and its deceleration over the medium-term,” the DBCC said.

Also, the economic team now expects the benchmark price of Dubai crude oil to be within $90 to $110 per barrel in 2022 considering potential supply disruptions caused by the war in Ukraine.

“Nonetheless, this is expected to decrease to $80-$100 per barrel in 2023 and $70-$90 per barrel in 2024 to 2025 as oil supply is expected to catch up over the medium term,” the DBCC said.

Further, the DBCC is now looking at the growth of Philippine gross domestic product (GDP) to settle within 7 percent to 8 percent. Previously, the forecast was for GDP growth of up to 9 percent.

Again, the DBCC cited the war in Ukraine as prompting the revisions, along with slowing growth in China and the normalization of monetary policy—or the rise of interest rates—in the United States.

ING Bank senior Philippines economist Nicholas Mapa said BSP Governor Benjamin Diokno appeared to be preparing for a follow up rate hike in June.

In last week’s policy meeting of the Monetary Board, the BSP’s overnight borrowing rate was raised by 25 basis points (bps) to 2.25 percent. This was mainly on account of a greater-than-expected 8.3 percent GDP growth in the first quarter and inflation kicking up to 4.9 percent in April.

“We expect a punchy 50 bps increase if May inflation sizzles past 6 percent to get ahead of the curve, 25 bps if inflation settles at 5 percent,” Mapa said.

The economist added that, following the 25-bps hike last week, the BSP’s key policy rate was expected to be raised again by a total of 75 bps to bring it to 3 percent by the end of 2022.