MANILA, Philippines - UK-based Barclays has cut its full-year forecast for inflation this year amid falling international oil prices.
“Inflation continues to decline across Asia, but the pass-through into core and services inflation remains slow,” Barclays said in the latest Emerging Markets Weekly.
The bank has slashed its 2015 forecast for average inflation to just three percent from an earlier projection of 3.6 percent. The new figure is well-within the Bangko Sentral ng Pilipinas’ two to four percent target this year.
“The effect of lower oil prices continues to be reflected in inflation prints. December inflation moved lower across the region, with the exception of Indonesia,” Barclays said.
Asian benchmark Dubai crude stood at an average of $62.56 per barrel in December last year, down from a $107.81-per-barrel average in June 2014 and $103.99-per-barrel average back in January 2014.
“While the fall in oil prices has been a significant driver of lower inflation, an additional factor in Asia has been the impact of favorable weather on food prices,” Barclays said.
“There are also downside risks to our inflation projections for the rest of emerging Asia, though the pass-through of lower oil prices into core, particularly services has been subdued so far, and the risks of widespread deflation, even from the supply side, appears low at this point,” the bank continued.
Aside from the Philippines, the bank downgraded its average inflation forecast for Malaysia to 2.6 percent this year from 3.8 percent, and for Thailand to 1.3 percent from two percent.
Last year, inflation averaged 4.1 percent in the Philippines, well-within the BSP’s three to five percent target range. The rate has peaked in May to August amid tight supply conditions following a deadly typhoon in late 2013 and congestion in the main ports in Metro Manila.
But inflation started declining due the drop in international oil prices which translated to lower pump prices, jeepney fare cuts, and also the decrease in the cost of a number of food items.
The central bank sees inflation averaging three percent this year, within the narrower two to four percent range in place until 2016.
The BSP last week said risks to inflation this year include the pending petition for utility rate hikes and the foreseen tight power supply conditions in the summer.
The recent train fare hikes and the water rate increases that took place this month, however, has already been factored in the central bank’s forecast as early as last year.
Monetary authorities in the third quarter of 2014 raised key policy rates to keep inflation in check. BSP officials have said they remain ready to make any adjustments necessary in the future.