Inflation forecast to ease to 4% in 2019

Barcelona-based Focus Economics expects inflation to ease back within the two to four percent target of the Bangko Sentral ng Pilipinas (BSP).

Lindsey Ice, economist at FocusEconomics, said they lowered their inflation forecast to four percent instead of 4.2 percent this year and to 3.7 percent in 2020.

With inflation on a clear downward trend toward the target range, the BSP has more room to maneuver, Ice said.

“Moreover, if inflation maintains a downward trajectory, it could arm the BSP with further reason to turn accommodative sooner than previously expected,” she said.

However, the BSP is most likely to take a cautious approach to any change in its stance. It, however, remains ready to hike rates in case inflation rises again.

Inflation accelerated to 5.2 percent last year from 2.9 percent in 2017 due to higher oil and food prices as well as a weak peso. It started breaching the two to four percent target in March with 4.3 percent and peaked at 6.7 percent in September and October.

This paved the way for a series of rate hikes wherein benchmark rates were increased by 175 basis points in five straight rate-setting meetings from May to November last year.

However, inflation eased steadily to six percent in November, 5.1 percent in December, and hit a 10-month low of 4.4 percent in January.

This allowed the BSP’s Monetary Board to keep interest rates on hold last Dec. 13 and Feb. 7 to allow the economy to absorb the previous tightening cycle.

It also lowered its inflation forecast to 3.1 percent instead of 3.2 percent this year due to declining oil prices but kept next year’s projection at three percent.

Authorities believe risks to inflation outlook will remain evenly balanced this year while leaning toward the downside for 2020 given a more uncertain global economic environment.