Inflation to overshoot BSP’s target — IMF

Rising oil prices and the impact of the tax reform law may push inflation above the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP), the International Monetary Fund (IMF) said yesterday.

YongZheng Yang, IMF resident representative for the Philippines, said the multilateral lender has revised its inflation forecasts using the new base year after the Philippine Statistics Authority (PSA) shifted to the 2012 prices from the previous 2006 base year.

“The inflation forecasts have been updated using the 2012 basket. They are 4.2 percent for 2018 and 3.8 percent for 2019,” Yang said.

Based on 2006 prices, inflation was expected to settle at 3.8 percent for this year and 3.6 percent for 2019.

Inflation rose to a fresh five-year high of 4.5 percent in April from 4.3 percent in March, bringing the average inflation to 4.1 percent in the first four months of the year. The BSP has set an inflation target of two to four percent between 2018 and 2020. The central bank’s inflation target of three to five percent was breached in 2008 as the consumer price index (CPI) accelerated to 9.3 percent due to elevated oil and food prices.

Yang said the IMF is monitoring the actions to be taken by the central bank, especially the outcome of the scheduled ratesetting meeting on May 10.

Monetary authorities have been reluctant in tightening the country’s policy stance through a rate hike over concerns of rising inflationary pressures due to the implementation of Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law.

The central bank has kept an accommodative stance over the past three years to support the country’s expanding economy through a low interest rate regime. It last raised interest rates by 25 basis points in September 2014.

The Philippines is expected to be the fastest growing economy in Southeast Asia and second fastest in the world over the next two years as it remains resilient to external shocks, the IMF said through its latest World Economic Outlook (WEO).

The IMF retained its gross domestic product (GDP) growth projection for the Philippines at 6.7 percent for 2018 and 6.8 percent for 2019.

This would place the country’s economic growth the fastest among members of the Association of Southeast Asian Nations (ASEAN) and the second fastest in the world next to India’s 7.4 percent for this year and 7.8 percent for next year.

The projected GDP expansion of the Philippines would be faster than China’s 6.6 percent for 2018 and 6.4 percent for 2019 as well as Vietnam’s 6.6 percent and 6.5 percent.