Private economists cut inflation forecast

Economists of private banks have revised downward their inflation forecasts for the next three years, even as demand is expected to bounce back following the easing of the quarantine measures, according to a survey conducted by the Bangko Sentral ng Pilipinas.

Dennis Lapid, director of the BSP’s Department of Economic Research (DER), said private economists are now expecting inflation to average at 2.3 percent this year, lower than the previous forecast of 2.9 percent.

“Inflation expectations are lower, but remain manageable. The results of the BSP’s survey on private sector economists for June 2020 indicate lower inflation forecasts over the policy horizon relative to the March 2020 survey,” Lapid said.

For 2021 and 2022, Lapid said that private economists also slightly lowered their forecasts to 2.9 percent from the original target of three percent.

The BSP has set the inflation target at two to four percent from 2020 to 2022. Inflation stood at an average rate of 2.5 percent in the first half after accelerating to 2.5 percent in June from 2.1 percent in May.

The economy contracted by 0.2 percent in the first quarter, ending 84 straight quarters of positive growth or since the three percent contraction in the fourth quarter of 1998 due to the Asian financial crisis.

Economic managers expect the GDP to bounce back with an eight to nine percent growth next year.

“Analysts expect 2020 inflation to be at the lower end of the target range, with risks to the inflation outlook leaning to the upside with the anticipated recovery following the relaxation of quarantine measures,” Lapid said.

According to Lapid, upside risks to inflation include possible strong rebound in global oil prices, increase in private consumption following the recent easing of quarantine measures, challenging supply chain and logistics for basic and essential commodities, higher prices of food, including rice, as well as adverse weather conditions such as typhoons that could affect food supply.

Nevertheless, Lapid said the downside risks include subdued domestic demand due to high unemployment resulting from the closure of businesses, persistent downside pressures on global crude oil prices, and price ceilings imposed by the government on selected commodities.

Al-Amanah Islamic Bank sees inflation averaging three percent this year followed by Metropolitan Bank & Trust Co. with a range of two to three percent, Aboitiz-led Union Bank of the Philippines with 2.8 percent, Deutsche Bank with 2.7 percent, Korea Exchange Bank and New Yorkbased think tank Global Source Partners with 2.5 percent.

Based on the probability distribution of the forecasts provided by 20 out of 25 respondents, there is an 81.6 percent probability that average inflation for 2020 would settle between the two and four percent range, while there is a 17.6 percent chance that inflation would fall below two percent.

BSP assistant governor Iluminada Sicat said inflation would remain benign over the next few years as the economy recovers from the COVID-19 pandemic.

“We continue to see inflation to be benign until the first quarter of 2021 as the economy recovers from the pandemic. But we see slight adjustments or increases in the inflation outlook once the economy recovers,” Sicat told reporters.

The BSP expects inflation to average 2.3 percent for this year before accelerating to 2.6 percent for 2021 and three percent for 2022.

“We don’t see much pressure on inflation given the fact that domestic demand remains weak as a result of uncertainties arising from the pandemic,” Sicat said.