Stanchart sees 2016 inflation at 1.8%

Inflation rate will likely average at 1.8 percent this year with prices remaining stable, according to a Standard Chartered Bank commentary yesterday.

“We expect inflation to average 1.8 percent in 2016, versus the year-to-date average of 1.2 percent year-on-year and 1.4 percent in 2015,” said the bank’s economist for Asia, Chidu Narayanan.

Narayanan also expects a “mildly higher” inflation for the month of July of 2.1 percent compared to June’s 1.9 percent. The government will announce the July inflation rate on Friday.

“We expect inflation to have edged up to 2.1 percent year-on-year from 1.9 percent in June on a continued increase in food inflation,” the Stanchart commentator said.

“Food inflation was 2.9 percent in June. Utilities, the second-highest weight in the inflation basket, likely remained flat for the month. We expect transport inflation to have remained low as well,” said Narayanan. “Inflation excluding food and energy has been below trend so far and should moderate any significant upside risk from food,” he added.

Stanchart’s full-year estimate of 1.8 percent average inflation is lower compared to the central bank’s forecast of 2.1 percent for this year as announced after the Monetary Board’s policy meeting at the end of June.

On the other hand, private sector economists polled by the Bangko Sentral ng Pilipinas have a similar mean inflation forecast for 2016 of 1.8 percent.

For 2017, the average yearly inflation forecast of private sector economists was 2.7 percent while the mean inflation forecast for 2018 was at 2.9 percent.

The quarterly private sector forecasters’ survey included 27 mostly banks – both foreign and local – and their financial or investment firm affiliates.

According to the BSP, “analysts attributed their lower inflation expectations to the persistently low global oil prices and slower global economic growth.”

“These are likely to outweigh the upside risks to inflation that include the lingering effects of El Niño phenomenon, rebound in oil prices, power rate adjustments, possible occurrence of La Niña in the latter part of 2016, and holiday-related spending in the fourth quarter of 2016,” it added.

Based on the probability distribution on the forecasts provided by 22 out of 27 banks, the BSP sees a 65.2 percent chance that average inflation this year will settle between one percent to 1.99 percent range.

“(Also) there is a 29.5 percent chance that 2016 inflation rate will fall within the two percent to four percent target range (BSP’s target). For 2017 (banks) assigned a 71.8 percent chance that inflation will fall within the target range,” said the BSP.

Governor Amando M. Tetangco Jr. said earlier this month that there will be no changes in monetary policy stance even as inflation rates are on the rise.

Tetangco reiterated the “no-change stance” despite the US Federal Reserve’s “hold” monetary policy and the pending exit of Britain from the European Union.

Inflation in June was higher than the May figure because of greater annual increases in food and nonalcoholic beverages. Other non food items also rose.