Inflation seen to ease further

Economists of private banks see lower inflation over the next three years as stable food prices are expected to outweigh the effects of the El Niño weather disturbance, power supply shortage, election-related spending, and the US Fed interest rate increase.

Results of the survey of private sector economists conducted by the Bangko Sentral ng Pilipinas (BSP) showed a lower mean inflation forecast of 2.3 percent for this year instead of the 2.7 percent average in the March survey.

The survey also showed a lower mean inflation forecast of 3.1 percent for 2016 and three percent for 2017 compared to the earlier forecast of 3.3 percent.

“The analysts attributed their low inflation expectations mainly to the decline of international food prices, which are likely to outweigh the effects of the El Niño phenomenon, power supply shortage, possible Federal rate hike, and election-related spending,” the BSP said in its inflation report for the second quarter.

The BSP has set an inflation target of two- to four-percent for 2015 and 2016.

The June survey showed 60.8 percent of the respondents see inflation averaging between 2.1-and three-percent while 24.3 percent expect consumer prices to settle within the one- to two-percent range.

Inflation eased to a 20-year low of 1.2 percent in June from 1.6 percent in May amid stable food prices. This brought the five-month average to 2.2 percent, near the lower end of the two to four percent band.

The BSP revised its forecast for average inflation for this year to 2.1 percent from an earlier projection of 2.3 percent and to 2.5 percent instead of 2.6 percent for next year.

Monetary authorities said risks to inflation outlook remained “broadly balanced with upward price pressures coming from pending power rate hikes and the impact of El Niño phenomenon on food prices and utility rates.”

However, slower global economic activity remains a downside risk to domestic inflation.

The BSP sees inflation returning to the two percent level in the fourth quarter of the year as the adverse effects of the prolonged El Niño, particularly during the lean harvest season, start to kick in.

Francisco Dakila Jr., managing director of the BSP’s Monetary Policy sub-sector, said inflation over the past few months has been falling below the target band of two- to four-percent for this year and next year.