FMIC-UA&P lowers 2.5% inflation forecast for 2016

First Metro Investments Corp. ( FMIC) and University of Asia and the Pacific ( UA& P), are lowering their inflation forecast this year as the continued softening of oil prices is expected to offset the impact of El Niño and election related spending on food prices.

In the February 2016 issue of the “Market Call,” FMIC and UA&P said they are now reviewing their 2.5 percent inflation forecast.

“Continuing low crude oil prices, going below $30 per barrel in most of January, should provide a balancing factor to expected higher food prices in the face of El Niño and election spending,” FMIC and UA&P said.

FMIC and UA&P see inflation averaging 1.3 percent in February before kicking up to 1.8 percent in March and April.

Inflation eased to a 20-year low 1.4 percent last year from 4.1 percent in 2015 amid stable food prices and lower utility rates brought about by the continued softening of oil prices in the world market.

The Bangko Sentral ng Pilipinas (BSP) has set an inflation target of between two percent and four percent this year and next year.

The central bank expects inflation for February to range between 0.9 percent and 1.7 percent amid lower food prices, softening oil prices, and the roll back of fares in the region.

BSP Governor Amando Tetangco Jr. earlier said the inflation forecast for February supports the within target inflation outlook over the policy horizon as it has set a target of between two percent and four percent for this year and next year.

“BSP will continue to monitor price trends and take necessary measures towards its commitment of price stability,” he said

Tetangco pointed out the fall in rice, gasoline, and LPG prices as well as the provisional rollback in jeepney fares in certain regions are seen to dampen inflation pressures for the month.

On the other hand, higher power rates and domestic prices of diesel and kerosene could exert upside pressure to inflation in February.

Inflation eased to 1.3 percent in January from 1.5 percent in December due to cheaper utility rates and the rollback of the minimum fare for jeepneys.

The BSP’s Monetary Board slashed its inflation forecast to 2.2 percent instead of 2.4 percent for this year but retained next year’s projection at 3.2 percent.

FMIC and UA&P sees the country’s gross domestic product (GDP) growing at a faster pace in the first quarter as the government keeps the taps open as election day nears, strong consumer spending.

The economic expansion is expected to slow down in the third quarter before resuming its robust growth in the fourth quarter.

Given this scenario, FMIC and UA&P see the BSP’s Monetary Board keeping interest rates unchanged this year.

“We maintain our view that the MB’s monetary policy stance will remain on hold for this year given the below median forecast inflation for 2016,” they said.

The BSP has kept interest rates unchanged for 11 straight policy-setting meetings since October 2014 amid the robust domestic demand and the manageable inflation dynamics.