Economists see higher inflation in 2018

BSP survey

Private sector economists surveyed by the central bank expect a higher inflation average for this year of 3.5 percent, partly due to price pressures that will arise from the tax reform program.

The adjustment to the inflation outlook, which was higher than the 3.4 percent the same economists estimated in the previous survey (September 2017) was considered by the Bangko Sentral ng Pilipinas (BSP) during its December 14 Monetary Board policy meeting.

Based on the minutes of the meeting, the Monetary Board noted that the inflation expectations of the private sector economists were still in-sync with that of the BSP’s.

“Inflation expectations — based on the Private Sector Economists Inflation Forecasts surveyed by the BSP — continued to be in line with the BSP’s within-target inflation outlook,” according to the minutes.

Results of the survey for November 2017 showed that mean inflation forecast for 2019 was steady at 3.4 percent, said the BSP. “However, the mean inflation forecast for 2018 was higher at 3.5 percent from 3.4 percent in the previous survey round.”

Back in September 2017, economists estimated 3.4 percent for 2018 while for 2019, the inflation forecast was 3.4 percent.

The Monetary Board continues to assess that risks to future inflation “remained weighted toward the upside.”

“The transitory impact of the government’s tax reform program, higher global crude oil prices, pending petitions for adjustments in transport fares and electricity rates are the main upside risks to inflation,” noted the BSP’s policy-making body. “Meanwhile, the slower global economic growth due to policy uncertainty in advanced economies and geopolitical tensions as well as the proposed reform in the rice industry involving the replacement of quantitative restrictions with tariffs and the deregulation of rice imports over the medium term continued to be the main downside risks to inflation.”

The Monetary Board is scheduled to conduct its first key rates meeting this year on February 8.

Inflation average rate closed at 3.2 percent in 2017 which was the same rate predicted by the central bank. For this year and in 2019, the BSP expects the inflation rate to settle above the midpoint of the target range of two percent to four percent.

BSP Deputy Governor Diwa C. Guinigundo had said that while they expect the tax reform program will put pressure on inflation numbers, they look at it as mostly short term effects, particularly from the higher fuel prices.

He said the one percentage point impact of the tax reform program “hardly justifies a monetary response” since it will be on the supply side.

With a manageable inflation path, the BSP has not raised its monetary policy stance since September 2014 when it increased the key overnight rate by 25 basis points.