Economists cut inflation forecasts

Economists of private banks lowered their inflation forecasts for this year and next year amid the lingering uncertainty over the global economic growth and lower oil prices, according to a survey conducted by the Bangko Sentral ng Pilipinas (BSP).

Zeno Ronald Abenoja, director at the BSP’s Department for Economic Research, said results of the survey of private sector economists for June 2017 showed a lower mean inflation forecast for 2017 at 3.3 percent versus the March projection of 3.4 percent and for 2018 at 3.4 percent instead of 3.5 percent.

However, economists raised their 2019 forecast to 3.5 percent from 3.4 percent in March.

There were 30 respondents in the survey of private sector economists conducted between June 19 and July 3.

Abenoja said the lower forecasts for 2017 and 2018 could be attributed to the slower rate of increase in global oil prices as increased production of shale oil in the US counteracted the supply cuts agreed upon by the members of the Organization of Petroleum Exporting Countries (OPEC).

He also cited the lower electricity rates last June reflecting the refund to customers made by Manila Electric Co. (Meralco).

Abenoja said, the private economists also took note of the lingering uncertainty over the prospects of the global economy.

On the other hand, Abenoja said the key upside risks to inflation outlook were seen to emanate from the depreciation of the peso, proposed tax reform particularly the fuel and vehicle excise taxes, and government spending on infrastructure.

Other risks include the transport fare hike, base effects, adverse weather conditions in the latter part of the year, another rate hike by the US Federal Reserve in the second half, and the protectionist policies of US President Donald Trump.

Based on the probability distribution of the forecasts provided by 24 out of 30 respondents, there was a 90 percent probability that average inflation for 2017 would settle within the two to four percent target set by the BSP. For 2018, the respondents assigned an 83.2 percent probability.

Inflation eased to a fivemonth low of 2.8 percent in June from 3.1 percent in May, bringing the average to 3.1 percent in the first half. The consumer price index (CPI) reached 3.4 percent in March and April and has been on a downward path.

Based on the forecasts made by the BSP, Guinigundo said inflation could still hit 3.4 percent in August.